Household Debt: Are Consumers to Blame?

Credit-card companies and subprime mortgage lenders should be held responsible for driving so many Americans deep into debt.

January 1, 2008

Americans really know how to overspend. Bankruptcies, mortgage delinquencies, and credit card debts are all on the rise. But some of that debt isn't totally their fault; predatory lenders are the cause of many subprime defaults, and they're also hurting consumers in the wallet, too.

Here's a look at consumer debt is snowballing, in the form of bankruptcies and delinquencies:

  • The American Bankruptcy Institute says that consumer bankruptcy filings increased over 28 percent in November, year over year.
  • The total number of November filings was down 5.5 percent from October.
  • Chapter 13 filings constituted 39.53 percent of November's cases, a slight increase over October. That's significant because Chapter 13 bankruptcies allow homeowners to say in their homes.
  • The Mortgage Bankers Association's third-quarter report says that the percentage of all mortgages starting the foreclosure process jumped to a record high of 0.78 percent. That surpassed the previous high of 0.65 percent set in the second quarter.
  • The delinquency rate (on loan payments 30 days or more past due) for all mortgages went up 5.59 percent in the third quarter — the highest since 1986.

Adding to consumer pressures are credit card debt, which the Federal Reserve says consumer debt increased 5.25 percent in the third quarter. Right now, consumers are carrying about $2,200 in credit card debt. And some predatory lenders are making it worse.

A Senate subcommittee found that credit-card companies are kicking some consumers while they're down, using credit scores as their excuse to raise interest rates, even if the consumers are making on-time payments. The consumers often don’t realize why their rates have jumped, only noticing that it's harder to pay off the card. Suddenly, they can't afford their homes or their credit cards, and the rates go up even more.

And that's the position some subprime mortgage holders also are finding themselves in — growing debt wherever they look. Consumers share some blame for the current credit crisis, but predatory credit card lenders are also at fault.

(c) Copyright 2008 Realty Times. Reprinted with permission.

Blanche Evans is a writer/editor and CEO of evansEmedia. Formerly, she was a senior editor with Realty Times, where she was named by REALTOR® Magazine as one of the most influential people in the real estate industry.