Credit Card Defaults Increase
October 30, 2007
The agency that rates credit worthiness, Moody’s, recently reported that credit card defaults are on the rise. In fact, they are sharply higher than they were in the past.
There is some evidence that as the average home price increased over the last few years, many consumers used that added value as a way to pay off or pay down on credit card balances. This was mostly accomplished through home equity loans.
Moody’s asserts that the current state of higher interest rates along with a falling housing market has made it far more difficult for some consumers to borrow equity from their homes. For those individuals who were living on the edge before, this can mean real trouble and some of that trouble may be seen as late payment or non-payment on credit card bills.
With the advent of universal default clauses in many credit card contracts, the interest rates on credit cards can climb to a staggering amount, making it all but impossible for some homeowners to stay ahead of their bills.
It should be noted, that as the housing market continues to fall, homeowners may find it more and more difficult to maintain their current standard of living. Once adjustable rate mortgages begin to reset, resulting in much higher monthly mortgage payments, many homeowners will most likely see a reduction in their standard of living