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Date July 6, 2009

Getting Out Of Debt Is Now Imperative

One of the biggest drawbacks of using credit cards for purchases is the high risk of getting yourself into debt. If you are a smart consumer, then you are probably keen on keeping up to date with your monthly balances and you probably pay it off every month.

Getting Out Of Debt Is Now ImperativeHowever, emergencies and sudden financial disasters, such as the current economic crisis and high unemployment, can easily destroy your monthly credit card payment schedule. As a result, you have probably found yourself in deep debt now. Unfortunately, now is the worst time to carry any balance on your credit card.

Credit card companies have been trying to recover from several financial setbacks that have happened to them in the past few months. The economic collapse which led to a consumer buying slowdown meant that credit card spending slowed down as well. Consumers, now faced with a weak economy and an increasing unemployment rate began to hold on to their cash more. The result was an increase in debt delinquencies and write offs which cost credit card companies billions of losses. While trying to stem the tide, credit card companies were recently hit with the credit card bill, a set of legislations which will cut off the more predatory practices of credit companies and attempt to balance the field for consumers. This has led to a panic among credit companies as they foresee a slow down in earnings once the credit card bill becomes active which should be on the first quarter of next year.

Due to the many financial problems and profit threats that credit companies are facing, they are now aggressively doing everything they can to earn as much as possible and to change their business models so that they are positioned favorably when the government activates the credit card bill. It is well known that any problems that credit card companies face will ultimately be passed to the consumers and the situation is no different now.

Currently, credit card holders are seeing rapid increases in their interest rates and credit card fees. More and more banks are also introducing fees into their credit cards such as yearly membership fees. They are also cutting available credit as fast as they can. The end result of all these changes is that credit card holders are finding it more and more difficult, not to mention expensive, to pay off their debts and to use their credit cards. Even worse is that these changes are having very negative effects on the credit scores of many credit card holders.

These days, if you are carrying any balance, you are certainly in a world of trouble. The best move is to pay it off as soon as you can and, once you’ve done so, avoid using your credit cards in the meantime.

Date June 26, 2009

Consumers To Bear The Brunt Of Credit Industry Crisis Say Experts

There is no doubt that the credit industry is in very sad shape right now. High delinquency rates coupled with record levels of write offs have resulted in serious financial setbacks for credit card industries. The impending activation of the credit card bill in a few month’s time will also have a negative effect on the credit industry. However, in the end it will be the consumers who are going to get hit hardest, experts say.

Consumers To Bear The Brunt Of Credit Industry Crisis Say ExpertsLaura Nishikawa, researcher for RiskMetrics, a shareholder advisers group, said that credit card companies are going to abandon their traditional business models because the combination of rising defaults and tighter regulations are stifling their profits. In general, the adviser sees that lending is going to slow down with borrowers borrowing less and lending companies holding back loans.

Recently, Nishikawa authored a report stating that the credit card industry is going to change fundamentally because of the unexpected increase in credit risks and the newly established federal regulations. She also said that the results of the changes will stay with the credit industry far longer than the business cycle currently. According to her, the profits that credit companies used to enjoy are no longer going to happen. The result will be that these companies will curb the availability of credit. Consumers who have risky credit histories are going to see less or even no credit. Even reliable consumers are going to take a hit through higher loan costs and a drying up of benefits and perks.

According to Ben Woolsey of CreditCards.com, the new regulations will greatly limit the ability of credit card companies to earn profit. The companies will not taking that sitting down, however. Originally, the credit industry saw enormous profits off borrowers who would carry balances every month. Now, with that gone, the industry is going to look elsewhere and the most likely target would be borrowers who have been getting a free ride for many years. Thus, borrowers will soon see annual fees and a loss of promotional offers.

The impact of the credit industry’s actions will have a large effect on the economic recovery of the country, said Center for Responsible Lending senior researcher Joshua Frank. According to him, the recovery of the economy will be slowed down largely due to the losses in the credit industry. Credit card companies who are cutting off access to credit are also going to slow down consumer consumption. The drying up of credit will also have a psychological impact on the general consumer population and spending will slow down considerably, even among those who don’t use credit cards a lot.