As the economy continues to spiral further on the strength of plunging home values brought on by rising foreclosures and lenders becoming more cautious, rising gas, food and electricity prices, and the shrinking job market, it seems consumers are turning to credit cards to help them get by, using the line of credit as a source of income. Of course it was arguably credit cards that got us into this mess in the first place. So the question is, what the heck are consumers thinking?
Already saddled with a $2.54 trillion debt, U.S consumers seem unable and unwilling to mend their ways, instead living for the moment in the hopes that things will somehow turn around. Things are turning alright, and it's for the worse, not better, and as long as consumers continue to take this lackadaisical approach to their debt, it will not improve. This problem is as much the credit companies as it is the consumers, preying on their greed and stupidity by extending them loan upon loan that far exceeds their acceptable debt to income ratio.
And as more and more Americans see their credit scores tumble, it ultimately means that the new debt they continue to take on comes at an even steeper price than the first debt which they couldn't handle. This exponential increase in risk has absolutely no hope of being good for consumers.
Of course lenders are more than happy to oblige consumers with more and more debt. While it's true mortgage lenders have become more cautious as a result of the massive rise in defaults and foreclosures on mortgages, this is largely due to the limited return on equity that mortgages return, and not on any actual concern of consumers not being able to afford their loans. Lenders have proven beyond a shadow of a doubt that they really don't care much one way or the other.
With the credit card companies having nearly tapped the country dry, they're now looking abroad for their next victims, with American Express CEO Kenneth Chenault confirming that the company was now targeting affluent Americans and new customers abroad.
Meanwhile Citigroup opened 2.3 million new card accounts in Mexico and India where the economy is growing. Apparently those consumers haven't seen what those credit cards have done to our country even when carrying a low fixed APR credit card.
With their claws already dug into much of the nation, it's now up to consumers to somehow find a way to wriggle out of the credit companies' grasp. The trouble is the cyclical nature of credit card debt, with a load of debt taking potentially years to pay off, often to the point of detriment that the consumer needs to begin using that card to buy household needs because that money is going towards the credit card payments.
The outlook for credit issuers may be rosy, with billions of untapped consumers in far flung reaches of the world, but for those who've been left behind in their wake, the future looks grim. Further job cuts, a weakening housing market and higher costs of living will leave fewer Americans unexposed in the years ahead. The power of plastic indeed.
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