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Despite continuing economic doldrums, defaults are down

Consumers who continue to carry credit card debt have generally been able to make at least their monthly payments better this year than they did last year. Four of the six largest credit card issuers report that defaults on credit card debt have been lower this year. However, two of the large creditors report slight increases in write-offs of uncollectable balances, according to regulatory reports filed in August.

Revolving credit balances are down 21 percent since they peaked in 2008, when the economic downturn was just beginning to hammer Cincinnati residents. The Federal Reserve says that credit card companies hit their peak for charge-off rates in the second quarter of 2010. That rate hit its high of 10.96 percent of credit card accounts. However, most experienced bankruptcy attorneys know that many consumers often struggle under high debt loads by paying minimum payments while not reducing their debt. With the economy still sluggish, unexpected events can arise, which can lead to deeper financial distress.

Two of the major credit card companies saw slight increases in defaults this year. One of the giants, Capital One, reports that it has seen an increase in its rate of payments late by 30 days or more. The late payment rate is separate from the default rate. Late payments of 30 days or more are considered by many as an indicator of future defaults.

The creditors say overall outstanding balances on credit cards have dropped since the peak of the recession. Lower outstanding balances generally accompany lower monthly minimum payments on credit card debt. However, paying only the minimum payment does little to reduce the total balance.

Experts say the reductions seen recently in overall debt relate, in part, to consumer credit reforms passed in 2009. Limiting fees that banks can add to the interest rate has allowed some consumers to get a better handle on their debt.

Many Ohio consumers, however, still face unmanageable credit card debt, or other debts loads that can leave the household budget strapped. Cincinnati residents who have unmanageable debt can speak with an experienced bankruptcy attorney to learn what options may be available to find debt relief.

Source: AP via Daily Herald, "Credit card defaults, late payments continue slide," Sept. 18, 2011

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