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Rising rates, higher gasoline prices are putting a squeeze on budgets
A gas station customer uses his credit card to pay for his gas purchase in
Des Plaines, Ill. Some consumers may be finding that higher gas prices and
interest rates are squeezing their budgets.
NEW YORK - Rising interest rates and higher gasoline prices are putting the
squeeze on consumers' budgets, and many are finding it harder to keep up
with their bills.
Credit counseling agencies say that consumers are coming in in droves
seeking help.
"My phones are going crazy," said Howard Dvorkin, president of the nonprofit
Consolidated Credit Counseling Services Inc. in Fort Lauderdale, Fla.
"Consumers are carrying an exorbitant amount of debt - and they don't have
any savings to fall back on if things don't go right."
An important measure of consumer financial distress, late payments on credit
cards, ticked up in the first quarter, according to figures from the
American Bankers Association. The Washington, D.C., based trade group said
the percentage of bank cards 30 or more days past due increased to 4.40
percent in the January-March quarter from 4.27 percent in the final quarter
of 2005.
The Federal Reserve's decision last week to raise short-term interest rates
for the 17th consecutive time will boost yet again borrowing costs for
consumers, likely prompting more delinquencies on credit card bills - as
well as on auto loans and mortgages.
The slowing economy also is depressing income growth, so a greater
percentage of take-home pay is going toward necessities and less is left
over for debt payment.
Among the consumers who recently put a call into Dvorkin's counseling center
was Andreia Marshall, an assistant project manager for a builder in Delray
Beach, Fla.
Marshall said that after she broke up with her boyfriend, her paycheck wasn't
big enough to cover her apartment rent, higher gasoline prices and other
day-to-day expenses. Soon she started falling behind on her credit card
bills.
"It got to the point where the credit card companies were calling," she
said. "It's overwhelming, you feel as if you're drowning and you feel bad
about yourself."

With help from a credit counselor, Marshall is working out a budget and
whittling down her $13,000 in card debt, which she figures could take 3 1/2
years.
"I have to think about everything I spend," she said. "Sometimes in the
grocery, I have to say to myself, 'Do you really need to buy this?' And I'm
looking at things like, how can I not spend $80 on dry-cleaning."
Marshall said that instead of feeling deprived, she's feeling good about it.
"I'm proud about what I'm doing," Marshall said. "I'm paying that debt and
getting educated, and I know I won't make the same mistake again."
Catherine Williams, a credit expert with Money Management International, a
Houston-based financial counseling and education agency, said rising costs
for gasoline and utilities were only part of the explanation for rising
credit card delinquencies and increased consumer financial stress.
"People refinanced (their mortgages) six months or a year ago, so the 'house
bank' is empty," Williams said. "Most can't go back and tap their home
equity again."
In addition, she said, consumers can only juggle debt payments for a
while. As she put it: "You let the car payment go one month, then the house
payment. Then you make a lot of little creditors happy for one month, maybe
for two months. Then it becomes obvious that you have to catch up on car
payments, and everything else slides."
Williams called it "a dangerous strategy" because consumers who let accounts
go delinquent risk harming their credit ratings. A poor credit rating makes
it harder for consumers to get loans and can force them to pay higher rates
on the loans they do get.
Consolidated Credit's Dvorkin pointed out that millions of Americans rushed
to declare bankruptcy before the law change last fall made it harder for
them to discharge unsecured debts. The high level of bankruptcy filings
temporarily depressed the delinquency statistics and other measures of
consumer financial distress, he said.
"Now we're seeing a new crop of people starting to get into trouble," he
said. "They can't keep up. They're the ones most affected by increased gas
prices and higher rates."
He said juggling payments is one of the "leading indicators" that a consumer
is in trouble. He added that other telltale signs are:
You only make minimum payments month after month.
You're taking cash advances on one credit card to make the minimum payments
on others.
You delay - or are late, with important payments, such as the monthly
mortgage.
You put off necessary activities, such as doctors' appointments.
© 2006 The Associated Press. All rights