Credit News
Posted by: Staff Writer | Jul 22,2007
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There's a strangely mixed picture about credit cards. While the economy is not the healthiest it's ever been, there has been a decrease in the amount of defaults on credit card payments. What's surprising is that credit card use is also on the rise. Put those two things together and you find two things: an increased number of people are relying on credit cards and those same people are responsible about paying their bills.
Falling Credit Card DefaultsAccording the American Banker's Association (ABA), credit card delinquencies have fallen in the first quarter of 2007. The numbers are down to 3.46 percent from 3.54 percent in the fourth quarter of 2006. Credit card delinquency was at a high in 2004 and was 4.65 percent for the first quarter. Clearly, borrowers are more careful than years past. At the same time, credit card debt overall has gone up at a clip of 6.4 percent annually, as measured in May 2007.
What is especially surprising is that credit card payments have recently doubled. One would think that due to the increase in credit card payments that more people would be defaulting on their payments. What has actually happened is the opposite. One theory suggests that due to the heightened cost of keeping a credit card, people are being more careful to not default on their monthly payments. However, spending is also up for credit cards, so credit card holders are not ceasing from using their cards outright.
The Rise in Credit Card PaymentsIn the past, credit card payments were only two percent of the overall balance. Today, credit card payments are as much as four percent of the balance. The good news is that you can potentially pay off your credit card earlier, as every bill will pay out a larger piece of the overall bill. The downside is that you have to shell out more every month. In this new climate, it is vital to have a low APR because in a bad situation, four percent of credit card debt can go mostly to interest, meaning that you won't necessarily be paying off the debt at all. A $10,000 balance at 19 percent APR could take years to pay off with a minimum payment.
What this also means is that consumers should check the fine print of the terms and conditions to see how much the APR will skyrocket after a missed payment. One of the reasons for the decrease in delinquencies is that consumers are much more savvy about finding attractive credit card offers. In addition, the practice of skipping between offers, such as zero percent APR for the first year on balance transfers, ensures that new credit card holders will pay off an outstanding balance sooner rather than later. |
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