Americans Turn to Credit Cards to Stay Afloat
As the economy continues to deteriorate, reports indicate many consumers are turning to credit cards to stay afloat. Add this to rising defaults in mortgage payments and a tightening credit market, concern is spreading among those invested in credit card asset-backed securities (“ABSâ€).
Concerns arose when home prices began to decline as the subprime crisis developed last year, bringing an end to a long cycle of low-interest-rate credit to consumers. The major alternative to credit cards for many was a home equity loan. But with little equity left to tap, consumers turned to credit cards. According to the Federal Reserve, revolving debt – most of which is on credit cards – rose to a record $943.5 billion last year.
Magnifying concerns are rising energy and food costs, declining economic growth, and growing unemployment. As a result, many Americans are using plastic to pay for necessities, sometimes paying their credit cards before, or instead of, their mortgages.
The fear is that many people will default on their credit card payments in the same way they have defaulted on mortgages payments. If this happens, those invested in ABS, many of which are backed by credit cards, face potential losses. Â Â
Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage related investment losses. Â
