Are You Using Plastic to Bridge Cash Shortfall? Consumers' Credit Debt Grows with Fears of Losing Jobs

By Zawislak, Mick | Daily Herald (Arlington Heights, IL), May 1, 2001 | Go to article overview

Are You Using Plastic to Bridge Cash Shortfall? Consumers' Credit Debt Grows with Fears of Losing Jobs


Zawislak, Mick, Daily Herald (Arlington Heights, IL)


Byline: Mick Zawislak Daily Herald Staff Writer

Credit card debt has taken the biggest jump in more than five years, and it isn't necessarily because confident consumers are buying more goods.

Instead, some apparently are using plastic to make up for income shortfalls or disruptions, analysts say. And a growing number of people are assessing their financial standing as layoffs continue to make news.

"Some people are pretty nervous about, 'Am I going to be the next to be laid off?' " said Katherine Williams, president of Consumer Credit Counseling of Greater Chicago, which has six centers in Chicago and the suburbs.

Williams reports that about 4,200 people sought advice during the first quarter this year - a 9 percent increase over the same time last year and nearly twice the normal growth rate.

About three of every four people who walk in a CCC office simply want to get a handle on their debt situation and do not choose to enter into a debt management program, even though they owe an average of $12,000 on credit cards and another $6,000 on car loans, she said.

"They don't want to see themselves get caught so they're being proactive," said Williams. "They want to see exactly how much trouble they're in."

Credit counselors are used to seeing more clients in the spring, as charges rung up during Christmas become unmanageable. But credit analysts have another take on the most recent figures regarding the amount of credit card debt.

After a sluggish December and January, outstanding credit surged more than expected in February, increasing at an annual rate of 20 percent. New debt rose from $2.8 billion in December to $6.4 billion in January to $11.1 billion in February, according to CardWeb.com. The February figures, the most recent available, marked the biggest one-month gain since September 1995.

"The sense is, not only among us, but other analysts, that really what's happening is it's not new spending it's rather just balances that are sliding forward and not getting paid off," said Robert McKinley, CEO of CardWeb.com. Forty-four percent of cardholders pay the balance in full each month, he said.

"It may be a shift in habits. We may be actually seeing less consumers paying those balances off and letting them slide."

Renewed consumer spending accounts for some of the increase but there are other factors at work.

"But second, it is almost certain that the weaker economy and rising layoffs are leading to more emergency credit card usage to smooth income disruptions," according to Brian Nottage, a senior economist with Economy.com, a research firm for investors and businesses..

Nottage said spending isn't rising nearly as fast as credit card debt, meaning consumes are using credit to make up for income shortfalls.

The trend might slow as consumers refinance their mortgages and use the extra cash to either convert the higher credit card debt to mortgage debt and/or lower their need to borrow.

One bit of good news is that credit card holders may save at least $1. …

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Are You Using Plastic to Bridge Cash Shortfall? Consumers' Credit Debt Grows with Fears of Losing Jobs
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