Economic Crisis Affecting Credit Card Payments
Last week, Standard and Poor’s released a new survey that provides a statistical glance at how American households are doing during the current credit crisis. This study highlights some fascinating statistics about credit card usage.
The study shows that one in five of those surveyed indicated that they are sometimes (14%) or always (6%) unable to pay their credit card and/or loan balances each month. 8% only make their minimum payment and 8% always or sometimes pay less than the minimum payment.
The survey says that credit cardholders are also increasing their use of credit cards for cash advances. 10% of Americans are taking out more cash advances on their credit cards than they did in the past. This increase is evidence of the financial stress that is spreading for cardholders because cash advance rates are extremely high and should be used only in emergencies. Most credit cards charge 20-25% APR for cash advances.
Of those who carry a balance, 22% have between $5,000 and $20,000 in credit card debt. 3% have more than $40,000. 25% are at or near the limit with their primary card. An additional 20% are at or near the limit with their secondary card.
This shows that many cardholders have a high debt utilization ratio, which is an important component in credit scores and indicates to creditors that the cardholder is a credit risk. As a result, the cardholder’s credit score can drop and the interest rates for most loans can increase to a higher rate tier. A higher rate makes it very difficult for households to pay down their credit card debt.
Experts say another concerning statistic is the prioritization of monthly bills. 35% of respondents said their mortgage was the bill they would pay first while 26% said their credit card is the bill they would pay before all others.
If money is tight and you have to make choices about what to pay, first pay the bills that are a necessity for health, shelter, basic groceries, and basic transportation. Then pay the secured loans, such as your car loan. Since credit cards are unsecured, pay them last.
The study provides the statistics to show that Americans are having more difficulty paying for their credit card loans. Over the past year, 13% of respondents said they found it a lot more difficult to pay, 25% said it was somewhat more difficult. Just 10% said it was less difficult.
If you are in danger of missing a payment, contact your creditors as soon as you realize you have a problem. They may be able to help you work out a payment plan, lower your rate, or lower your monthly payment. It is better business for them if you keep making some type of payment toward your loan and interest payments. Because banks lose money when accounts go into default, they would also like to avoid this.
Link to press release about the study:http://www.prnewswire.