Credit Card Delinquencies Hit Record High

Credit card delinquencies shot to a record high in the second quarter, as consumers tried to keep up with rising gas prices and increasing interest rates without curtailing spending, a report showed Wednesday.

 The percentage of credit card accounts that were 30 days or more past due rose to 4.81 percent during the April to June period, up from a revised 4.76 percent in the first quarter, the report from the American Bankers Association found. 



 ``What the delinquencies tell us is that there are more people who are under financial stress,'' said James Chessen, the association's chief economist. ``The rise in energy prices is sucking up much more of households' budgets than they ever did.'' 



 There's little hope of a third or fourth quarter decline in credit card delinquencies, experts said, since gasoline and energy prices have continued to rise since June, and consumer spending has not declined significantly. Hurricanes Katrina and Rita may also affect individual credit, particularly in Gulf Coast communities affected by the storms. 



 ``If you're living on the edge, then when the price of gas and heating oil goes up, you end up over the edge,'' said chief economist Bill Cheney, with John Hancock Financial Services. 



 Too often, experts said, people don't curb their spending; they just rack up additional debt. Even the increasing gasoline costs themselves often end up on, yes, credit cards. 



 ``I think it's going to be a tough lesson for many Americans to learn,'' said Lynn Law, the education and counseling director with the Long Island Housing Partnership. ``It becomes a downward spiral, where the food goes on the credit card and the mortgage gets paid. One thing leads to another, and if you were on the edge, you're in a bad place.'' 



 The association's report comes just before new regulations for bankruptcy go into effect on Oct. 17. The new law will likely make dealing with bankruptcy a lot tougher for many consumers. But that new law may be responsible for some of the second quarter spike in delinquencies, as more people declared bankruptcy before the law became official. 



 The second quarter delinquency gain may also have been due to the fact that fewer people had savings to fall back on, as the savings rate posted for the second quarter stood at minus 0.6 percent. Meanwhile, increasing interest rates mean that home equity lines of credit, or any variable rate loans, are now more expensive, leaving credit cards as the only option. 



 ``If people can't pull any more equity out of their homes, they may be resorting more to their credit cards to cover their expenses,'' said John Danaher, president of TrueCredit, a California-based credit management firm. 



 To top off the financial perfect storm, many workers aren't seeing wage increases that would accommodate the continually increasing prices in goods like gasoline. 



 ``The expectation was that the economy was going to get better and wages were going to rise and employment was going to increase,'' said James Parrott, the Fiscal Policy Institute's chief economist. ``But you have the ingredients for a fundamentally different economic picture -- one that's not so promising.'' 



 As a result, the consumer spending that has been responsible for the economic recovery has depended, in part, on consumer debt, Parrott and other experts argued. 



 ``We've been borrowing our way out of the recession, and nothing else has kicked in to take over,'' Parrott added.