Housing crash fuels rise in card debt

USATODAY.COM - 02/22/2008
As more homeowners struggle with skyrocketing house payments, several experts expect many of them to start using their credit cards as a means to get by. Once unpaid balances reach five figures and interest rates creep past 20% or even 30%, however, credit card users face trouble.
"Anybody who is having trouble servicing their mortgage is going to try using credit cards to finance those other expenditures," said Tom Cargill, an economics professor at the University of Nevada, Reno. Nationwide, the use of revolving credit — fueled largely by credit cards — kept increasing throughout 2007, according to a recent consumer credit report by the Federal Reserve. Use of revolving credit rose 11.3% in November. In comparison, revolving credit increased 6.1% in 2006 and 3.1% in 2005. A large part of the problem is how easy it is for consumers to obtain credit cards, said Mark Pingle, an economics professor at the University of Nevada, Reno. But large unpaid balances can be trouble. A $50,000 credit card debt at 24% interest, for example, means users will need to pay an extra $12,000 per year on top of their regular payment, Cargill said. Add extra fees and all sorts of penalties to the mix, and credit card owners can dig themselves a very deep hole. Even credit card debt that's only in the hundreds can be a big deal for consumers with low incomes.