June 21, 2010
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News: How Are Americans Paying Down Debt?
Changes are under way for consumers as new credit card reform rules begin to impact consumers and lenders alike. According to the U.S. Federal Reserve, Americans are paying down debt much faster than was expected. Although some are paying down mortgage loans, the majority of those reducing debt are paying down credit card balances faster than expected. At one time, if short on cash, individuals always paid mortgage loan payments before credit card payments. In today's financial world, Americans tend to default on their mortgage payment rather than let their credit card payments lapse. Why?
Because with high unemployment and inflation, individuals depend more heavily on their card to bridge pay check to pay check. At least that's how the numbers appear. If it only appears that Americans are paying down debt faster and at the expense of their home, then what is really happening? In actuality, many Americans have just defaulted on both their mortgages as well as their credit card accounts. Not a very fair or honest way of handling debt, nevertheless, the practice has made it appear that the U.S. debt is declining. The numbers indicate debt is lowering but it's really lowering because lenders are writing off more and more debt.
It is most unfortunate for our nation that the loyal credit card customer has been footing the bill for the dead beats who think it's okay to rack up thousands of dollars and then default. It is also the loyal cardholder who now because of new legislation and high default rates continue to pay high interest and fees to help make up for all those card defaults. So what's the answer? Lenders need to do a better job at scrutinizing who can and cannot have credit. Furthermore, stiffer penalties should be imposed on individuals who default which includes automatic lawsuits be filed against them. Let them tell their story in court in front of a judge.