Tuesday, December 30, 2008

Credit Cards and HELOCs - No Money Left

During the housing bubble people relied on credit to pay for everything. Why pay in cash when credit was better. Credit seemed to be never ending and with low rates and easy access one could live any lifestyle they wanted. When you used up the excess credit - just roll it up into a HELOC or ReFi and voila you have more available credit.

That was the life. But now it seems just the opposite is happening. With credit once readily available, now it seems to be drying up at every turn. And the fees, the FEES! Jumping so high on little warning that the fees alone are pushing people into trouble. This brings us to an article from the Asbury Park Press titled Changing credit-card terms are squeezing consumers. Lets take a look -

Aggressive rate increases on credit cards are threatening to push struggling consumers into financial ruin, accelerating home foreclosures and the nation's descent into recession.

The growing problem is reflected in cases such as that of Dennis Spaulding, of Corona, Calif. He bought two last-minute plane tickets for his father's funeral in 2006, a purchase that increased the amount of credit he was using and made him appear riskier to banks. The result: Banks raised the interest rates on four of his credit cards — to 24 percent and higher — doubling his monthly payments to about $2,000.

Across the nation, a growing number of consumers and financial experts are complaining that sudden credit-card limit reductions and sharp interest rate increases are triggering a domino effect that makes it harder for consumers to juggle bills, stay in homes and avoid going broke. No official data are available on how many people are being pushed into financial distress by credit cards rather than mortgages. But credit counselors, bankruptcy lawyers and legislators say banks increasingly are pummeling consumers for making the smallest payment error — or making no error at all.

The shift comes as regulators and legislators have spent the last year pointing to toxic mortgages and overextended home buyers as the culprits behind the financial crisis. Credit cards, by encouraging a society of spenders rather than savers, have played a significant role in loading up consumers with unaffordable debt whose rates and terms can change at any time.

USA TODAY, in previous articles in its "Credit Trap" series, has reported that during the housing boom, banks sharply raised card limits, in part, because of a surge in home equity, then guided borrowers to use mortgages to pay off card balances. The series also found that banks' practice of packaging and selling credit-card debt to Wall Street has given them a powerful incentive to raise card rates and fees.

Funny how the ones getting the help from the little guys (read the bailout) are not doing anything to return the favor. In fact, they are raising the rates and cutting access. But don't worry in 2010 - if nothing changes - the credit card industry will be facing some new regulations. Until then it is more of the same - socialize the loss and privatize the profit.

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