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U.S. consumer debt soars $7 billion in one month

Consumer debt up for FebruaryWashington -- A surge in credit-card debt figures released Wednesday by the Federal Reserve does not surprise consumer advocate Linda Sherry and other credit and debt educators.
"The credit card companies are still sending out the solicitations and I do think the whole new focus on marketing to the subprime borrowers is contributing to the problem," said Sherry, editorial director for the nonprofit consumer advocacy group Consumer Action in San Francisco.

Pushing credit on people
"It's perplexing to see so many reports that mention that credit card debt is slowing down, when in fact the marketers are pushing credit on previously bankrupt people in record numbers. It only figures that the credit card debt numbers would rise."
Borrowing rose by $7 billion for the month, the Fed said, to $1.24 trillion, after rising $4.6 billion in January. The biggest factor causing the increase was credit card debt, which rose to $3.9 billion in February from $2.1 billion in January.

A sign of good times?
Bank analysts pooh-poohed the increase as merely a sign of rising incomes and more disposable income among consumers. Bloomberg News reported that Nationsbanc Montgomery Securities economist Peter Kretzmer insisted that consumers are paying down debt, and that the Fed's report does not reflect the fact that more bank customers are using home equity loans to consolidate credit card debt.
Banks nationwide have reported an increase of $13 billion in volume of outstanding home equity loans during the last year, Kretzmer added, while revolving consumer loans have declined.

Credit cards firms: 'It's not our fault'
At a recent series of bankruptcy hearings in Washington, D.C., credit card companies bemoaned the fact that they had received the brunt of complaints about bad consumer debt, when in reality, only 16 percent of all bankruptcy debt was attributable to credit card debt.
Others who help counsel consumers and deal with complaints against creditors are a little more skeptical of the motives of banks and credit issuers, especially in marketing to people with previously "bad" credit.

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"Who you grant credit to is important and, in our opinion, the banks and credit card companies are going after a lot of people who simply can't handle credit," Sherry said. "It's like giving a child a pack of matches. The debt had to go somewhere ... and no one got income raises to pay off these debts, so of course, it's going to rise."

It keeps growing and growing
Sherry added that the problem with credit card debt is that it will only continue to rise because of interest added and other extraneous charges.
"Credit card debt just keeps getting bigger," she said. "And no one wants to see people risk losing their homes with home equity loans to pay off unsecured debt. I just don't think it's worth the risk."

 

-- Posted: April 8, 1998

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