Sub-Prime Crisis Spreading to Credit Card Debt?

As predicted by many, credit card debt default continues to grow.

The latest figures show credit card debt defaults booming.

There is no sign people will stop charging for Christmas gifts and other holiday expenses.

Bankruptcy filings typically rise when the holiday bills arrive, and cannot be paid. As the article linked to above states, the American tradition is no longer to save to buy what we want, it is to buy now, pay later.

The sub-prime mortgage crisis is still unfolding, and the credit card crisis is next.

Most credit card debt is sold and securitized and packaged into trusts which are collateral for bonds.

No, I don’t fully understand it either, but it has the same appearance as mortgage debt.

A big part of the problem with mortgage debt is that no one can tell the good from the bad. It makes sense that the same will happen with credit card debt.

As defaults increase, the value of the bonds backed by the trusts of credit card debt will be questioned by investors. As with the same securities backed by the sub-prime mortgages, there is no liquid market for these things.

Doubt about the true value of these securities will increase the pressure to dump them, further lowering their value, and the snowball effect will grow.

Liquidity issues return, “Helicopter Ben” Bernanke will continue to throw cash into the system, causing inflation and its dire consequences to the economy.

As always, best to buy only what you can afford. Figure out your real budget, what your actual income and expenses are.

Do not spend everything on monthly payments.
Realize the credit card account contracts are written by the credit card companies for the credit card companies. You can still find yourself in a situation in which you make all the minimum payments, and at the end of the year, still owe the same balance, or more, if the 30% penalty interest rates have kicked in.

When you see that monthly expenses exceed your monthly income, do not borrow from relatives, do not cash in some of your retirement funds, until you talk to an experienced bankruptcy attorney, who can point out errors about the bankruptcy law that the media continue to repeat, like this one in the last link:

“Filing for bankruptcy is no longer a solution for many Americans because of a 2005 change to federal law that made it harder to walk away from debt. Those with above-average incomes are barred from declaring Chapter 7—where debts can be wiped out entirely—except under special circumstances and must instead file a repayment plan under the more restrictive Chapter 13.”

False. Not true. Mis-statement entirely.

When you want the answer to a question about the law, contact a lawyer.