The Next Crisis: Credit Cards

The housing collapse is coming to a head. The Federal Reserve is throwing the kitchen sink at the problem. The treasury will soon be so expansively empty that there will be relentless echoes as its doors are opened and slammed shut during the bailout withdrawals. And, the Fed is printing money faster than it is hemorrhaged in Iraq. Why?

Another tsunami is looming.

Americans, on average, save about 1% of their wages. More recently, this number has dropped as close as we are in the scientific world to absolute zero. We are a nation built on debt. Debt finances construction and growth. Companies use debt to make payroll. Small businesses use debt to finance dreams. Our government rarely pays for anything with cold hard cash. Our current national debt is over 10 trillion dollars. We love debt.

On a smaller scale, consumers mimic the larger organizations. According to the Harper's Index, the average number of credit cards per American family at the end of 2005 was 12.47. Citizens charge food, clothes, electronics, cars, boats; at the height of the housing burst, mortgage lenders even offered credit cards attached to equity. The housing bubble gave everyday citizens the peace-of-mind to charge up to their eyeballs. The safety net was always the house; always the perceived equity.

Times have changed. Some have lost their houses, their security, their 401ks; many have lost their jobs. As belts tighten, consumers are forced to take a long, hard look at their balance sheets. For some, it's a choice between the car or the gym. In more dire situations, it's the car or food. Guess what's on the bottom of the priority list? That's right: credit card payments.

There is an 'out of sight, out of mind' mentality when it comes to credit cards. It's easy to charge away and forget about the mountain of debt accumulating. Worse, when it comes due, many Americans feel slighted by credit companies and cry foul. Some file bankruptcy, and some forfeit their credit by consolidating with counseling services. Others simply let the cards lapse. Arguments can be made on both sides of the issue when it comes to blame. However, what is more pressing is the frightening default trend. Consumers have hit bottom. They are terrified by the economic collapse. And in many, many cases, they have cut their losses.

According to Voice of America, the national consumer debt as of February 2008 was 790 billion dollars. While people struggle to hold down jobs and make ends meet, this debt is rapidly becoming a national emergency. While some say that credit card debt is simply another headache for lenders, it realistically could become the fatal blow. These companies are drowning--they are relying on this debt to be repaid.

This tail spin is far from over. Lenders are cutting credit lines and even canceling cards. They foresee the impending credit card default disaster. Now more than ever is a time to save, to manage finances carefully, and live within one's means.