by | Sep 27, 2011 | Uncategorized

Copyright 2004 Houston Chronicle

I’m worried my paper shredder isn’t big enough.
No, I don’t have any important records to dispose of; and I never worked for Arthur Andersen. My problem is I have a mailbox.

Every day, at least two offers for low-interest credit cards arrive. Banks beg me to go into debt. They entice me to take debt I already have with another bank and give it to them. They ask me to hock the little piece of my house that I actually own. They even suggest I borrow against my tax refund.

For many people, either because of need or desire, the offers work. An average U.S. family now has six credit cards with a combined limit of $21,000, according to a study last year by Demos, a nonpartisan public policy research group in New York.
For credit card companies, the debt itself isn’t where they make the big money. They start cashing in when we fall behind. Between 1996 and 2001, late fees collected by credit card issuers rose more than fourfold, to $7.3 billion annually from $1.7 billion, according to, an online research service that tracks the credit card industry. During the same period, the average late fee more than doubled, to $29.84 from $13.28.
At the same time, the minimum monthly payment customers can make without incurring a penalty fell to 2 percent of the card balance in 2001 from 5 percent in 1993, Demos found. That means you can spread your payments out longer and get socked with more interest. A $5,000 balance on a card charging 15 percent interest would take more than 30 years to clear by paying the minimum.

Credit card companies aren’t the only ones looking for lucrative ways to lure us into hock. During the recession, home electronics manufacturers, carmakers and mortgage companies stepped up efforts to snare us by offering more favorable terms. Sony sells televisions with no payments for a year, General Motors offers seven-year car loans, and Washington Mutual now has 40-year mortgages.

The result? Debt is stacking up in ways it never has before. Consumers lured by the promise of no money down on new cars a few years ago now find they owe more than their cars are worth. Some are buying new cars, borrowing more than the price of the new vehicle and using the excess to cover what they still owe on the old car. Lenders call this “negative equity.’ I call it a deep, dark hole.

The only thing more dangerous than consumers willing to borrow more than the value of their collateral is banks willing to lend to them.
Here in Texas, we’ve seen that little number before. Banks across Texas made loans like that to developers in the mid-80s, right before the real estate market tanked, dragging down 500 of the state’s financial institutions.

Consumer spending is a powerful thing. It has risen for 13 straight years, accounting for about 70 percent of our total economy. Household spending has been the main driver of the recovery. Easy credit has its benefits. Many people now have access to capital they might otherwise have been denied. But it comes at a price. Household debt reached a record $8.9 trillion last year. In 2003 alone, more than 1.5 million people filed personal bankruptcy, more than five times the number of filings in 198C according to the American Bankruptcy Institute. Consumer debt experts expect that number to continue rising.

By 2010, one in seven families with children will tile for bankruptcy, says Amelia Warren Tyagi, co author of The Two-Income Trap, which examines the burden of debt on middle-class Americans.
“More children will live through their parents’ bankruptcies than their parents’ divorce,’ she says.
So are we becoming a nation of undisciplined spendthrifts? Not exactly. In the past 30 years, the nature of debt has changed. Tyagi found that people aren’t spending more on luxury items; they’re spending more on essentials. Houses in neighborhoods with good schools cost more. So does a college education.
Between 1972 and 2000, monthly
mortgage expenses rose by 69 percent, while expenses for other household items such as food, clothing and furnishings fell or stayed the same, Tyagi’s study found. The cost of a college education more than doubled during the same period.

The need to borrow for housing and education is stretching families thinner than ever- Then, if a crisis hits— a breadwinner loses a job or a family member is stricken with a long illness—there’s no cushion, no rainy-day savings to cover the unexpected costs.
In fact, most of us have no savings at all. In 1981, U.S. households saved more than 10 percent of their income.

By 2000, that number had dropped to less than zero and continues to fall, according to SMR Research Corp. That means many of us are operating in the red, borrowing because we can’t pay what we already owe and sinking ever deeper into a quagmire of debt.
Lending to people with bad credit has become big business. Banks send credit card offers to everyone: the desperate, the impoverished, even the bankrupt. My son’s friend got his first credit car offer when he was 6 years old. With fees and interest generating so much income, banks arc willing to take a chance on just about anyone. That’s why our mailboxes are so full of junk.

It’s not just me. All of America needs a bigger paper shredder.

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