The news about credit card debt in America in recent months has been relatively rosy. Defaults were down, credit availability was up, and consumers didn’t appear to be relying as much on revolving debt as they had in recent years. But when Hurricane Sandy blew across the Eastern Seaboard, leaving devastation in her wake, did she also leave potential for credit card trouble?
Federal Reserve data released this week showed that consumer credit grew $11.36 billion in September, but use of revolving credit was down. Student loans and mortgage lending were up, and total consumer debt was $2.74 trillion – a record high – but credit card debt dropped for the third time in four months.
Delinquency Rates Down
Default rates on credit cards have gone down over the last year, even as more credit cards were issued.
“The national credit card delinquency rate continues to remain at the lowest levels we’ve observed in 18 years. It’s a positive situation because average borrower balances have increased over the past year as new card originations have grown,” according to Ezra Becker, a vice president at TransUnion.
Banks Raise Limits
Many lenders, including Citi, Chase, American Express and Discover, have made it clear that they will do whatever they can to help customers suffering the effects of Sandy. They encourage credit card holders to call if they need to request higher credit lines, fee waivers, and/or extensions on due dates.
This will be helpful for people as they recover from the storm, but hopefully it will not cause a rise in the number of defaults.
Staying Out of Debt
Anyone who requests a credit limit increase in order to help them recover from the storm should keep three things in mind. Credit cards are a good tool when used wisely, but remember:
- Always make payments on time. Try to pay off the entire amount due, but if that’s not possible, pay at least the minimum balance by the due date.
- Don’t get cash advances. Cash advances almost always carry a very high APR, and it begins accruing right away. Purchases have a one-month grace period before interest is applied.
- Make a budget and have a realistic plan for paying off debt. Don’t just use the higher line of credit to buy necessities without having a pay-it-off plan in place. Write down expenses and income and stick to a budget as much as possible.