Credit Card Debts – Triggering off another credit crunch?

This is a guest post from, Internet’s first get out debt community.

Credit card debts are an increasing cause of concern and many are of the opinion that after subprime lending, credit card defaults is the second largest cause of the already existing economic slump. Defaults related to use of plastic money is adding fuel to fire. The number of credit card defaults is at an all time high and statistics suggest that this year the figure is likely to escalate in a remarkable manner.

Debts originating from US may be astronomical warns IMF

Debts could attain a figure of USD$4 trillion, the International Monetary Fund warned. It is also being anticipated that bad debts originating from the United States may reach USD$3.6 billion by mid 2010.

In fact statistical data suggests that in Q4 of 2008, household debt in United States was USD$13.8 trillion. The figure was released by the Federal Reserve. There is an increase by 8% from USD$12.8 trillion during Q4 of 2006. Studies reveal that a household has on an average debts worth USD$112,043 that include credit card debt, mortgages as well as other debts combined together.

Financial experts are of the opinion that the credit card industry is heading towards a situation similar to subprime mortgage crisis. It is being anticipated that unpaid debts will reach the USD$95 billion mark in 2009. Major credit card companies have announced write off volumes.

And one such credit card giant lost its credit rating soon after it declared debts that were not collected reached 8.7% in February 2009. Another credit card issuer reported that its default rate touched 9.3% in February this year. The figure was 7% in the month of January 2009. An escalation of 2.3% occurred in just one month.

Credit card issuers have changed payment policies to minimize risk

Credit cardholders have complained that many credit card companies have changed their payment policies and most of the credit cardholders were unaware. Owing to the credit crunch, lenders have become more apprehensive and have started exercising increased caution as far as lending is concerned.

The credit card issuers are taking all possible measures to reduce risks associated with lending. Credit card companies think credit cardholders will fail to make payments. And for similar reasons they are increasing the rate of interest, reducing the credit limits and making adjustments in their reward program etc.

The credit card issuers are not required to notify the consumers. As a result the consumers continue using the credit cards assuming that the terms and conditions are the same. It only adds up to their existing outstanding balance and consumers have to shell out late fees and extra charges.

When a credit cardholder accepts credit cards, there are a couple of cardholders who fail to realize what they are actually accepting as terms and conditions of credit card usage. So, before the credit cards take control of your life and finances, use them sensibly so that you don’t fall into a vicious debt cycle.

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