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U.S. consumer debt
soars $7 billion in one month
By Marion Miller King • Bankrate.com
 Washington
-- 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.
"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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