Credit binge faulted for rising bankruptcies, loan defaults and repos
In 1964, Sandra Miller married the man of her dreams, but that dream turned into a nightmare after she realized their finances were in disarray and the only way out of tremendous debt was filing for bankruptcy in 1996.
"Now I can't buy anything, I am done," said Miller, 62, of Fort Pierce, Fla. "I am just trying to keep a roof over my head and some food in my belly."
Miller isn't alone.
Millions of people are struggling to keep financially afloat. As the already-fragile economy struggles to overcome a three-year stock market nosedive, millions of layoffs, corporate scandals and waning consumer confidence, an alarming trend has emerged from the 1990s, when consumers binged on easy credit.
Personal and business bankruptcies, mortgage foreclosures, consumer loan defaults and auto repossessions are all on the rise or showing signs of increasing, which is fueling a tide of economic uncertainty.
"The bubble was going to burst sometime," said Chris McCarty, survey director at the University of Florida's Center of Survey Research for Consumer Confidence. "With credit cards lowering their standards ... lower interest rates on homes and cars ... and people refinancing their homes for 125 percent of what they are worth, I could see this coming a mile away.
"We were at the top of our game in 1998 and 1999. Things were bound to crash."
"Things will get better when they stop getting worse," said Merle Dimbath, an economist and president of Dimbath Economics in Stuart, Fla. "There isn't a quick fix to this. It will be a slow process."
Along with the rise in bankruptcies, the number of foreclosures also is on the upswing. Home-loan defaults nationally reached a record in 2002.
"We expect to see delinquencies fall as the economy improves and generates jobs growth," said Doug Duncan, senior vice president and chief economist for the Mortgage Bankers Association of America. "But that won't be for some time."
Experts say the nation's mounting debt is reaching critical stages, because consumers have overextended themselves financially with second mortgages and refinancings. In addition, they say, creditors offering unsecured loans to high-risk consumers are contributing to the dire situation.
Some observers think aggressive marketing schemes and the lure of low-interest or no-interest big-ticket purchases such as automobiles, boats and furniture means consumers are digging themselves into an even deeper debt hole.
According to the Consumer Bankers Association, the delinquency rates on car loans reached an all-time high of 2.88 percent in 2001. The year before the figure was at 2.07 percent. For last year, the delinquency rate was at 2.19 percent.
"The last thing someone wants to lose is a mortgage on a house. The second thing people aren't going to want to lose is a car because their livelihood depends on getting to and from work," said Fritz Elmendorf, vice president of communications at Consumer Bankers Association.
"The 1990s were driven by consumption and a great deal of that came from borrowed money -- almost half a trillion of that was borrowed money," said William Fruth, economist and president of Policom Corp., a Jupiter, Fla.-based economic research consulting firm. "Now we have realized we have overextended ourselves."
Many consumers have turned to credit counselors or debt management experts. In many such programs, debts are consolidated into one lump payment, credit cards are cut and a monthly budget is established to help consumers manage their money.
Consumer Credit Counseling Service, a nonprofit entity accredited by the National Foundation for Credit Counseling, offers a variety of personal money management solutions. The organization offers a debt management plan in which CCCS negotiates with creditors to reduce interest rates and lower or waive late fees and overlimit penalties.
"The average amount of debt we see is about $17,000 to $20,000. Some of our clients have about eight or nine credit cards," said Gay Watson, communications director at CCCS. "Depending on the amount of debt, we can get them on a program where they can be debt free in three years."
CCCS says it does not report its clients to credit-rating agencies, but some creditors might inform credit bureaus that a person has opted to go on a debt management program. This, some say, might taint a consumer's rating.
"Once something like that goes to the credit-reporting agencies, it stays on your record for seven to 10 years, and there are some loopholes that allow creditors to keep circumventing that information even after those seven years," said John Anastasio, a Stuart, Fla., bankruptcy attorney.
Veda Lamar, a consultant for the National Foundation for Credit Counseling, says consumers must be careful in choosing the right debt management program because some agencies lack the training and experience in consumer debt repair.
"Consumers have to make sure they are certified and accredited. Most of the new guys are not, causing even more problems for consumers," she said. Lamar also warns that consumers should be aware of any substantial upfront fees and fine print in the contracts.
In 1964, Sandra Miller married the man of her dreams, but that dream turned into a nightmare after she realized their finances were in disarray and the only way out of tremendous debt was filing for bankruptcy in 1996.
"Now I can't buy anything, I am done," said Miller, 62, of Fort Pierce, Fla. "I am just trying to keep a roof over my head and some food in my belly."
Miller isn't alone.
Millions of people are struggling to keep financially afloat. As the already-fragile economy struggles to overcome a three-year stock market nosedive, millions of layoffs, corporate scandals and waning consumer confidence, an alarming trend has emerged from the 1990s, when consumers binged on easy credit.
Personal and business bankruptcies, mortgage foreclosures, consumer loan defaults and auto repossessions are all on the rise or showing signs of increasing, which is fueling a tide of economic uncertainty.
"The bubble was going to burst sometime," said Chris McCarty, survey director at the University of Florida's Center of Survey Research for Consumer Confidence. "With credit cards lowering their standards ... lower interest rates on homes and cars ... and people refinancing their homes for 125 percent of what they are worth, I could see this coming a mile away.
"We were at the top of our game in 1998 and 1999. Things were bound to crash."
"Things will get better when they stop getting worse," said Merle Dimbath, an economist and president of Dimbath Economics in Stuart, Fla. "There isn't a quick fix to this. It will be a slow process."
Along with the rise in bankruptcies, the number of foreclosures also is on the upswing. Home-loan defaults nationally reached a record in 2002.
"We expect to see delinquencies fall as the economy improves and generates jobs growth," said Doug Duncan, senior vice president and chief economist for the Mortgage Bankers Association of America. "But that won't be for some time."
Experts say the nation's mounting debt is reaching critical stages, because consumers have overextended themselves financially with second mortgages and refinancings. In addition, they say, creditors offering unsecured loans to high-risk consumers are contributing to the dire situation.
Some observers think aggressive marketing schemes and the lure of low-interest or no-interest big-ticket purchases such as automobiles, boats and furniture means consumers are digging themselves into an even deeper debt hole.
According to the Consumer Bankers Association, the delinquency rates on car loans reached an all-time high of 2.88 percent in 2001. The year before the figure was at 2.07 percent. For last year, the delinquency rate was at 2.19 percent.
"The last thing someone wants to lose is a mortgage on a house. The second thing people aren't going to want to lose is a car because their livelihood depends on getting to and from work," said Fritz Elmendorf, vice president of communications at Consumer Bankers Association.
"The 1990s were driven by consumption and a great deal of that came from borrowed money -- almost half a trillion of that was borrowed money," said William Fruth, economist and president of Policom Corp., a Jupiter, Fla.-based economic research consulting firm. "Now we have realized we have overextended ourselves."
Many consumers have turned to credit counselors or debt management experts. In many such programs, debts are consolidated into one lump payment, credit cards are cut and a monthly budget is established to help consumers manage their money.
Consumer Credit Counseling Service, a nonprofit entity accredited by the National Foundation for Credit Counseling, offers a variety of personal money management solutions. The organization offers a debt management plan in which CCCS negotiates with creditors to reduce interest rates and lower or waive late fees and overlimit penalties.
"The average amount of debt we see is about $17,000 to $20,000. Some of our clients have about eight or nine credit cards," said Gay Watson, communications director at CCCS. "Depending on the amount of debt, we can get them on a program where they can be debt free in three years."
CCCS says it does not report its clients to credit-rating agencies, but some creditors might inform credit bureaus that a person has opted to go on a debt management program. This, some say, might taint a consumer's rating.
"Once something like that goes to the credit-reporting agencies, it stays on your record for seven to 10 years, and there are some loopholes that allow creditors to keep circumventing that information even after those seven years," said John Anastasio, a Stuart, Fla., bankruptcy attorney.
Veda Lamar, a consultant for the National Foundation for Credit Counseling, says consumers must be careful in choosing the right debt management program because some agencies lack the training and experience in consumer debt repair.
"Consumers have to make sure they are certified and accredited. Most of the new guys are not, causing even more problems for consumers," she said. Lamar also warns that consumers should be aware of any substantial upfront fees and fine print in the contracts.
