The Impending Wave of Credit Card Defaults

The housing crisis undercut our home values, the credit crisis left major lenders in a dilapidated state, and the financial crisis has destroyed many banks and investment firms in the U.S. The last thing this economy needs is a wave of defaults on credit cards which have become an essential part of American life.

The average card holder has about $2,200 in credit card debt, and the United States as a whole owes roughly $970 billion on its credit cards. Most card holders pay off their debt – or at least make payments on their debt – at the end of each billing cycle, so it is unclear how much of that debt is actually outstanding. Regardless, credit cards represent a major portion of the U.S. economy and a wave of failures could have brutal effects on an already beleaguered system.

Some industry analysts claim that the sheer amount of debt on credit cards is of no consequence compared with the size of debt in other areas – Americans owe less than $1 trillion on their credit cards, but they carry $12 trillion in mortgages and home loans. It is possible that a wave of credit defaults will have no effect other than putting several major card companies out of business. However, most analysts thought that the current crisis was nothing more than a pipe dream just one year ago when the Dow Jones and other indexes were at record heights.