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Credit Risk - The Next Big Credit Storm, Consumer Debt (November 26, 2007)

Location: New York
Author: Lenny Broytman
Date: Monday, November 26, 2007

A lot of people are saying that it is going to happen but a lot of those people do not understand that it's already happening. After the subprime crisis subsides, it's becoming more and more likely that credit card debt will become the next big thing dominating the finance headlines.

It's been more than a year and housing prices are still plummeting. With a vast majority of consumers affected falling behind on their bills as a result of an inability to properly handle their mortgages, the switch to plastic was almost inevitable. And apparently, a lot of people just don't seem too concerned either. According to the Credit Union National Association, fewer and fewer people make paying their mortgage and consumer loans a top priority.

Earlier this month, reported that Capital One could record several hundred million dollars more in charge-offs in 2008 than it previously forecast, on account of an escalating number of loan delinquencies.

According to a Federal Reserve Board's monthly Consumer Credit survey, consumer credit debt rose at an adjusted rate of 5.25 percent during the third quarter. The same survey said total consumer credit rose 5.1 percent from the same period a year earlier and stood at around $2.48 trillion.

The RBC Cash Index noted that consumer confidence plunged to a two-year low. This is not good news for an economy many experts are saying is doing its best to thwart off a drastic slowdown and plunge headfirst into a recession.

According to published reports, Americans spent an estimated $531 million in online retail spending during last week's Black Friday. The figure is a 22 percent increase from the holiday start of 2006 and is good news for the struggling economy.

Although the numbers look promising, it is unlikely that a vast majority of these purchases were paid in full. If the past year has been any indication of how this scenario is going to play out, the aforementioned debt statistics are just going to inflate even higher.

If Americans are ever going to ease their way out of a volatile, unhealthy market, they are going to have to spend. And spending means spending. not pseudo-spending that sees more and more families plunge into crippling debt. If the US economy is ever going to revive itself, this is something that is just going to have to change.

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