Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, November 8, 1995 TAG: 9511090002
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
SOURCE: JOHN CUNNIFF ASSOCIATED PRESS
DATELINE: NEW YORK LENGTH: Medium
Have Americans fallen into the habit that causes so much woe for Uncle Sam? Are they spending for today and letting the future take care of the payments?
Very definite signs exist that they are, such as close to $1 trillion in debts, growth in use of credit cards, increases in card billings, rising delinquencies and a declining level of home equity.
As a consequence, many consumers are finding themselves in the same bind Uncle Sam is in: Interest payments take so much of the household budget that discretionary spending is thwarted rather than enhanced.
In short, the future already has arrived for some families, and the number is destined to grow. They are slaves to the debts they amassed in their quest for the good life. Their substance abuse is plastic.
The dilemma is particularly difficult for non-homeowners because they have no solution except to either spend less, earn more or go deeper into debt. Well, yes, they have a fourth option, that being bankruptcy.
Homeowners still have a choice: They can borrow the equity in their homes, and they've been doing so. The National Association of Home Builders says owners' equity - the percentage of a home's market value held by the owners - fell to 57 percent in 1994 from 73 percent in 1982.
It's been a different, more difficult story for wage-earners without recourse to equity loans. Incomes for many wage-earners have been all but stagnant for several years. In the past year, they've risen only 3 percent.
Labor Secretary Robert Reich stated the consequences tersely: ``If workers don't have money in their pocketbooks, they either go deeper into debt or stop buying.''
Credit-card lenders have found a way: They have been extending repayment terms. Rather than calculating the borrower's monthly payment on the basis of repayment in three years, for example, they allow four years or more.
This, of course, lessens the monthly payments somewhat, but it adds to the interest burden. That burden to the payer is easy money to the lender. Where else can a lender so readily get 20 percent or more?
Little wonder the retail establishment is eager to spread the use of credit cards, and why you have received so many solicitations to accept still more - with more lines of credit to pay off other credit obligations.
Eventually, the process must slow, and it could be as early as the next few months. Catalog sellers already have complained about mysterious declines in sales, and Christmas forecasts are hardly merry.
by CNB