US Credit Card debt under the microscope | Globe and Mail
Something that has been of concern since last year, is the run on effect of sub prime both internationally, and then into other credit products.
The Globe and Mail pick up on that theme with a piece on US Credit Cards.
“If history is any indicator, there should be an equivalent surge in credit-card charge-offs very soon,” he said. “We forecast first quarter credit-card charge-offs will be $18.6-billion (U.S.) and that the total 2009 charge-off bill will add up to $96-billion.”
In particular this comment has a ring to it that is reminiscent of sub prime lending:
“On the other hand, companies that have pursued aggressive portfolio growth and higher yields at the cost of prudent risk management will struggle to manage rising loan losses, which will definitely cut into earnings or even worse, as the last few weeks have shown,” Ms. Ishikawa said.
Many people in todays Canadian workforce will not remember poor economic times, because things have been generally good for some time. All of this to suggest that people who have not reviewed their own credit card situation recently might want to think about that.
As far as Canadian Banks are concerned their exposure to the US is limited.
In response to a query during an e-mail question and answer period, Ms. Nishikawa said that the three Canadian banks most active in U.S. consumer banking, Royal Bank of Canada, Toronto-Dominion Bank and Bank of Montreal, are still “very small players” in the U.S. card business.
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David Simonds
September 30, 2008 at 12:29 pm
The banks have been throwing credit cards at people for the last 30 years and allowing them to build debt beyond ability to pay. I won’t shed a tear for bank losses, they brought it on themselves (and be clear about it: they’ve raked in much more profit than loss over time).
As to consumers, there is only one way to use credit cards. Pay them off at the end of the month. This means, naturally, that one should not charge beyond ones means to pay.
CCs provide a 30 – 50 day interest free loan. That is the only way to use it.
Limit yourself to 2 credit cards (3 if you’re a frequent traveller).
In order to be able to use it for an emergency or upcoming big ticket item, one should also build up some liquidity (short term savings). This can be invested in something modest like GIC’s that can be called out when needed.
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Alan
September 30, 2008 at 2:20 pm