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Consumer´s short-term debt in the U.S. is growing at an abnormally fast rate for a decade. This calls for the nation to immediately act on slowing this debt before it causes irreversible damage to the economy.
According to The Consumer Federation of America, creditors have been irresponsible in issuing credit card debt" and enforced lenders to limit credit lines to 20 percent of a household's income. Journalists, and some consumerist groups are protesting against lenders, particularly credit card issuers, for fooling consumers, mainly the low-income bracket with indiscriminate lending.
People getting into debt
Debt is purely the result of inadequate income to manage a living. Poverty stricken people have no option but to borrow to meet basic needs. Another major cause is when unfortunate circumstances such as redundancies, loss of job make it difficult for people to manage their finances and force them to borrow to the extent of drowning themselves in more debt.
Democratization of credit is leading to a hole
Some are of the opinion that it is the credit card companies that encourage debt through direct mail solicitations. However, other analysts feel consumers aren´t sinking in debt, in fact, increased use of credit card is simply a sign of the ¨democratization of credit.¨ They point out:
With Information being disseminated through computerized credit bureaus, it has become cost-effective for lenders to run credit checks on any strata of wage earners to safely extend credit to even average earners. Forty percent of cardholders successfully pay their monthly balances according to Visa USA this figure that has risen over the past decade. The ratio of consumer credit to disposable income fell from 21.4 percent in 1996 to 20.6 percent in the third quarter 1997 not much above the 20 percent ratio of 10 years ago. Also, the ratio of consumers' debt to their assets was 15.9 percent in 1989, hardly rising to 16 percent in 1995. Analysts believe that more consumers are capable of managing debt with lower interest rates, better jobs and higher incomes.
It is a matter of high alert
Bad publicity on credit card debt may not only spread fear and doubt but also lead to legislative or regulatory action that could hinder the free flow of information that led to the democratization of credit. This could force the government to impose restrictions on credit card solicitations, specifically to lower-income groups and limits on credit lines. If government bureaucrats get more involved in credit decisions, than lenders and borrowers it would only make consumers lenders the losers.
Nevertheless there will be some people who will have problems in paying their bills, probably because of circumstances unrelated to their accumulated debt or because they´ve still not to learned how to manage their finances. Those credit card issuers who are lost in their pursuit for volumes tend to allow their credit standards to deteriorate ultimately bringing losses upon themselves. However, lenders are generally more adept at making credit decisions than self-proclaimed consumerist experts and can find consumers who manage their debt well
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