Consumers Go Late On Auto Loans and Lines of Credit

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The American Bankers Association (ABA) just announced that late payments on consumer loans in the third quarter of last year hit the highest level since record-keeping began in 1980. Delinquencies rose to a seasonally adjusted 2.9% topping the previous high of 2.88% set in 1989.

Home equity lines of credit and indirect auto loans experienced the highest increase in delinquencies. Indirect auto loans are bank loans arranged through a third party like an auto dealer.

“The number one factor in rising consumer credit delinquencies is job losses.  With one million jobs lost in the first three quarters and two and a half million expected for the year, delinquencies of all types of consumer loans will likely increase in the coming quarters,” said ABA Chief Economist James Chessen.

Credit Cards

Most surprising, however, was the fact that bank credit card category was one of only two that showed a decline in delinquencies.

“While some people are relying on credit cards to meet daily expenses like food and gas, many are being careful not to add new debt.  Reducing debt and building up cash reserves are good strategies right now.  If you’re under financial stress, credit cards can be a bridge to meet daily expenses.  And, unlike other loans with fixed payments, credit cards let you adjust monthly payment amounts.  This flexibility is certainly helping people manage debt better during this difficult economic period,” Chessen said.

Not the Whole Story

What the ABA report fails to account for, understandably so given who they represent, is the non-bank issued credit cards that many Americans use. In fact, according to Fitch’s Retail Credit Card Index, delinquencies are skyrocketing for non-bank issued credit cards.

Although, like James Chessen pointed out, you may not be adding any new debt - you may be approaching a point where you will be unable to meet the minimum required payments on your credit cards. Rate increases and late fees can send balances and minimum payment requirements higher.

Debt Solutions

In the past, you may have had some success in obtaining a debt consolidation loan to roll your credit card debt together and help reduce the payments and interest rates. Unfortunately, with home values declining and credit guidelines tightening, it has become very difficult for most consumers to consolidate debt.

If you are current on your accounts and can afford the monthly payments but are looking for a way out of debt along with some general advice, consumer credit counseling may be a solution worth exploring. There you will find help with budgeting and putting together a debt repayment plan. They may suggest you enroll into a debt management plan where they contact your creditors on your behalf and work to lower your rates and help you pay the debt off quicker.

If you have already fallen behind or know you cannot maintain your current level of payments, debt settlement is an option that may help. Through a reputable debt settlement company or on your own, you can negotiate with your creditors to eliminate your debt for an amount less than what you owe. It is not uncommon for creditors to accept settlement offers under the right circumstances for less than 50 percent of the balance owed.

Take Action

The most important thing you can do when faced with overwhelming consumer debt is to investigate your options, select a strategy, and implement a plan. Your debt situation will not improve without a commitment from you to do something about it.

About the Author:
Chris Rocks is the Regional Director of the National Credit Federation (NCF), a consumer advocacy group that assists small business owners and consumers overcome debt and credit challenges. He can be contacted by visiting his personal site, GoodCreditLiving.com.

Post written by Chris Rocks

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