American owe $970 billion in Credit Card Debt

The credit crunch saga continues to unfold as borrowers fall behind on payments, defaults continue to rise, and investors continue to be hammered.

Historically, the credit-card industry has been able to weather economic downturns because of its pricing flexibility. As the economy slows and payments are late, card companies have been able to boost earnings through late fees and higher interest rates, much to the chagrin of consumers like you and me.

These days, however, consumers are finding it difficult to repay any of their debts and are just not paying at all. Now charge-offs, which represents the amount which is still owed but the creditor writes off the account balance as a bad debt, are increasing at a fast pace and beyond what was expected. The losses are estimated to far surpass what companies were hoping to make with extra card fees and higher interest rates.

The net charge-off rate on credit-card defaults might escalate to 10 per cent in 2009; double the average of 5 per cent over the past 10 years, reaching $18.6 billion in the first quarter and US$96 billion by the end of next year, according to Innovest.

As horrible as this is for the national economy, it's actually good news for consumers, because credit card companies are now more willing than ever to re-negotiate debts. Thus, if you're willing to take on the stress of trying to re-negotiate your debt without the help of an intermediary, you are more likely than ever to be able to convince your creditors to significantly cut your balances in half.

This is definitely one of those cup half empty / half full kind of situations. Thanks to Trinidad Express for the update.