Friday, May 18, 2007

Couple Learn the High Price of Easy Credit / NYT

debt everywhere..... this example illustrates what many families are experiencing. and with a recession under way..........

schulden so weit das auge...ich denke diese familie steht stellvertretend für viele in den usa. und das alles im auge einer kommenden rezession.......

this sums it up :-)

Hochgeladen von shosterman

here another debt statistic / hier noch ne schuldenstatistik
In 1980 it took $1 of new debt to create $1 of GDP (debt levels were much lower and capital usage was much tighter so new credit found its way into production), whereas today it takes $7 to $8 of new debt to create $1 of GDP.

YPSILANTI, Mich. — On a recent evening, Christine Moellering, 40, sorted through the plastic laundry basket where she keeps the family bills, statements and coupons.

“The Sears one is 32.24 percent,” Ms. Moellering said, reading a credit card statement with a balance of $5,955, including $155 in monthly finance charges. The high interest rate took her by surprise. “That’s nice,” she said sarcastically.

Ms. Moellering, and her husband, Mark, 39, earn average salaries for their age (together about $66,000 a year), live in an average-priced home and have an average cost of living. But like many other households these days, they have found that their day-to-day economic life has come to depend not just on how much they earn or spend, but also on how well they shuffle what they owe among a broad array of credit cards, home equity loans and other lines of credit.
Americans spent one in seven of their take-home dollars on debt payments last year, up from one in nine in 1980.

thanks to

>that is despite low fed funds rates interest rates compared to the double digits in 1980.....

>und das obwohl die zinssätze der fed deutlich unter den zweistelligen aus dem jahre 1980 liegen.....

Behind closed doors, the decisions families like the Moellerings make about their debt — when to pay it off, when to shuffle it to lower-interest sources and when to let it revolve and build — can determine how much their salaries are worth....

Their credit card debt came to $22,228, including $380 in monthly finance charges. Interest varied from 12.1 percent to 32.24 percent. The Moellerings also have a mortgage of $93,000 and a home equity loan balance of $68,574, at 8 percent interest. ......

Just a generation ago, financial profiles like the Moellerings’ would have been unusual. But changes in federal regulations since the 1980s, along with consolidation in the banking industry and changed consumer attitudes toward borrowing and saving, have made credit more widespread, more heavily marketed and more confusing, with offers of more credit — at low rates — extending to even the least reliable risk. In 2006, the industry mailed out nearly 8 billion credit card offers, up from 3.5 billion in 2000.

Credit card debt, less than $8 billion in 1968 (in current dollars), now exceeds $880 billion, more than tripling since 1988, adjusting for inflation, according to the Federal Reserve Bank. Penalty fees alone cost consumers $17.1 billion in 2006 — up from $12.8 billion in 2003, adjusted for inflation, according to R. K. Hammer, a bank card advisory firm. In part because of the debt burden, the consumer savings rate fell below zero percent in 2005 and has stayed there.

..... Mr. McBride said, as home values have increased and interest rates have dropped, home equity loans have enabled families to carry more debt — to buy more things — at lower cost.......

thanks to

For the Moellerings, juggling balances and interest rates has enabled them to pay for things they could not otherwise afford, like their 2004 wedding and house renovation, or to eat out occasionally, when “we’ve both had a bad day at work,” Mr. Moellering said. He earns $36,000 a year as a software applications designer.

As foster parents of two children they also receive about $1,200 a month in reimbursement from the State Department of Human Services, which goes toward “food, general living and ballet lessons,” Ms. Moellering said.

When the Moellerings pay a bill late or exceed their credit limit, interest rates have shot up, increasing the monthly cost of transactions and heaping penalty fees on top.

The bills in Ms. Moellering’s basket described an uneven track record of managing balances and interest rates.

On March 27, Mr. Moellering used a debit card rather than a credit card to make nine purchases, ranging from $5.38 to $48, hoping to avoid finance charges. But he miscalculated their checking account balance. Each purchase incurred an overdraft charge of $32, or a total of $288 in penalties, more than the $221.82 cost of the purchases. (After some pleading, the bank, National City, forgave four of the charges, leaving the Moellerings with $160 in penalties, plus interest on both the fees and the principal.)

When the couple met through Yahoo personal ads in 2003, they did not discuss debt. She wrote that she liked snow; he said he looked like Babe Ruth. She had about $6,000 in credit card debt at the time, mostly from paying for books and living expenses after a return to college. She used credit cards rather than applying for lower-interest student loans. “I never tried to get student loans,” Ms. Moellering said. “I was working full time and taking care of my sick mom and trying to go to school, so I never had time, so I just ad hoc’d.”

Their debt escalated when they decided to get married. They paid for rings, a reception, a honeymoon and a new bathroom — about $50,000 in a seven-month stretch.

“In such a short period of time, there’s no way to do it other than credit card debt,” Mr. Moellering said.

He paid for some of the expenses through a home equity loan, and paid contractors with promotional checks that came with low interest for the first year. When money gets low, the Moellerings skip paying credit card companies rather than miss a mortgage payment.

“And if the cat gets sick or something, then suddenly we’re trying to figure out, what kind of card can we use to pay this $500 vet bill,” he said.

In the last two years they have managed to cut their credit card debt by $20,000, Ms. Moellering said, and have built a savings of about $5,000, thanks to a Christmas gift from a relative. Ms. Moellering contributes to her retirement account at work. Both say they could manage better if they only had the time.

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Anonymous Anonymous said...

This is so sad..

8:01 AM  
Blogger jmf said...


10:17 AM  
Anonymous Anonymous said...

i learned my lessons with credit and credit cards. avoid it at all cost. even during this wicked time my bank is trying to get me to get a home equity loan. when i needed their help they said no and now that they need some good paying customers i say no. i am not going to sign my name on any application so that i give them permission to call me day and nite and at work if i can't pay because some calamity befalls me. i will only pay for one item at a time because i learned from my own experience that i always had more paying cash than i ever had paying with credit cards. it was heartbreaking but what doesn't kill you only makes you stronger

8:54 PM  
Anonymous Anonymous said...

Credit card debt is hard to get out of, specially if you've defaulted on payments and/or made late payments too. There are several ways to improve your credit score but often you might need to get a bad credit loan

12:13 PM  
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4:17 AM  
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8:31 PM  
Anonymous CreditGuru said...

If people understand how much they will pay for using a credit card they might as well decided not to use one at all. Although someone's with good credit even can get some money back when making purchases.

9:49 PM  
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