Entries in Debt (69)


US Household Debt Falls to 29-Year Low

George Doyle/Stockbyte/Thinkstock(NEW YORK) -- While politicians in Washington stumble toward the fiscal cliff, American households have really cleaned up their act.

According to the Federal Reserve, one key measurement of household debt in the third quarter plunged to its lowest level in 29 years.  The share of loan payments to disposable personal income fell to 10.61 percent.

This means that if the economy improves, many consumers may have more money to spend.  But right now, that remains a big "if."

Unless there’s a deal, the fiscal cliff could do real damage to the economy.  The first and best-known effect would be sweeping tax hikes.

“By jacking up taxes on so many taxpayers it will squeeze purchasing power,” says Greg Ip, U.S. economics editor of The Economist magazine.

Many consumers and businesses would cut back on spending.

“They just decide to pull back, not to spend, not to buy that house, not to initiate that new business venture and that would multiply the negative impact,” Ip says.

The third effect would come from sharp and sudden government spending cuts.

“You’ll see layoffs in the defense industry, layoffs in any industry that does business with the federal government as federal spending is cut back sharply,” says Ip.

Copyright 2012 ABC News Radio


Credit Card Debt Is Top Worry, Survey Finds

iStockphoto/Thinkstock(NEW YORK) -- Santa may be shimmying down the chimney in less than a month, but chances are he won’t be laden with as many gifts as in years past, and he probably won’t be charging the ones he is bringing.

That’s because credit card debt continues to be the biggest financial worry of the year, according to a November study conducted by myFICO, the consumer division of FICO, the company that invented the FICO score.  (The FICO score, lest you wonder, is the number that summarizes your credit risk.)

While half of the 2,400 consumers interviewed in the unscientific online survey said they will rely on credit cards for all their holiday purchases, a third said they would only use credit cards for more expensive gifts.

One-third of consumers said they’re cutting back on their holiday spending: Only 20 percent are thinking about opening new credit card accounts, and about 65 percent plan to charge less than $500 on the ones they have. A quarter of  respondents said they’ll need more than three months to pay off their 2012 holiday expenses, compared with 18 percent who responded to a similar survey in 2010.

Finally, 62 percent of respondents said they were worried about identity theft or fraud during the holidays. How to protect yourself?

“Regularly monitoring your bank statement and credit report for errors can be instrumental for identifying fraudulent charges and maintaining an accurate credit report,” myFICO spokesperson Anthony Sprauve told ABC News.

Copyright 2012 ABC News Radio


Americans Carrying More Credit Card Debt, Report Finds

Comstock/Thinkstock(NEW YORK) -- Americans are carrying more credit card debt and being less careful about making payments on time, according to a new report from TransUnion.

The credit reporting firm said the average credit card debt per borrower rose to $4,996 in the third quarter of 2012 -- a 4.91 percent increase from a year earlier.

Late credit card payments also went up between July and September.  The rate of borrowers who were at least 90 days overdue climbed to 0.75 percent from 0.71 percent in 2011.


"Credit card delinquencies are following a pattern similar to what we observed in 2011, with declines in the first two quarters of the year followed by an increase in the third," said Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit.  "That seasonal consistency is encouraging."

"Credit card debt trends in 2012 also are mirroring 2011, with a decrease in the first quarter followed by two increases over the next six months.  With both delinquencies and debt levels remaining quite low relative to historical norms, we are confident in the continued stability of credit card usage patterns in the short term," Becker added.

Copyright 2012 ABC News Radio


Report: Burden of Debt Continues to Grow for College Students

JupiterImages/Comstock Images(NEW YORK) -- The burden of debt for college students who take out loans continues to rise, according to a new report out Thursday.  

“Two-thirds of new graduates had loans and their average debt was $26,600 dollars for the class of 2011,” says Lauren Asher, president of the California-based Institute for College Access and Success.


She says average debt for college students who graduated last year rose more than $1,000, compared to the year before.

“College costs have outstripped both family incomes and available grant aid now for quite awhile and that shows up in more and more debt,” Asher says.

By some estimates, student loan debt in the U.S. has grown to over $1 trillion.

Copyright 2012 ABC News Radio


Sarah Lawrence Tops List of Most Expensive US Colleges

iStockphoto/Thinkstock(NEW YORK) -- A college degree may be losing its value, but the price tag for a four-year education continues to rise.

The cost to attend college for one year exceeded $60,000 for the first time this year, according to Campus Grotto, a college publication that compiles an annual list of the most expensive colleges.

Tuition at more than 70 colleges is more than $55,000, according to Campus Grotto, and the sticker price often makes it necessary for students to seek financial assistance through student loans and other means.

Last year, the total student debt surpassed $1 trillion.

According to a report from the Pew Research Center, nearly one in every five U.S. households is saddled with student loan debt.

The Pew Report found that 40 percent of all households headed by those younger than 35 had student loan debt. Among households owing on student loans, the average outstanding loan balance increased from $23,349 in 2007 to $26,682 in 2010, according to the Pew Research Center.

In the meantime, the cost of a college degree continues to climb.

This year the cost to attend the most expensive college, Sarah Lawrence College, for one year was  more than double the average outstanding loan balance in 2010. The private college in New York’s Westchester County charges its students $61,236 a year for tuition, room and board and fees.

Here’s Campus Grotto’s list of the top 10 most expensive colleges:

1. Sarah Lawrence College
Total Cost: $61,236

2. New York University
Total Cost: $59,837

3. Harvey Mudd College
Total Cost: $58,913

4. Columbia University
Total Cost: $58,742

5. Wesleyan University

Total Cost: $58,202

6. Claremont McKenna College
Total Cost: $58,065

7. Dartmouth College
Total Cost: $57,996

8. Drexel University
Total Cost: $57,975

9. University of Chicago

Total Cost: $57,711

10. Bard College
Total Cost: $57,580

Copyright 2012 ABC News Radio


More Americans Paying Off Debts

George Doyle/Thinkstock(NEW YORK) -- You might be better off than you think! Americans owe far less money than they did five years ago before the recession, and they are paying the bills at the best rate in years.

According to the latest survey by S&P Dow Jones Indices and Experian, most loan types saw a decrease in default rates. The national average has dropped for eight consecutive months.

“People are being far more disciplined than they used to be,” says top S&P economist David Blitzer.  ”A big part of that drop has been mortgages but the decline in debt levels has not only been mortgages but has really been across the board.”

Auto loan default rates are close to record lows. “Those levels have really dropped down to where they were long before the financial crisis.” It’s a big change from the days of no-doc loans and other forms of unrestrained lending.

Copyright 2012 ABC News Radio


Moody’s Warns of US Debt Downgrade

Scott Eells/Bloomberg via Getty Images(NEW YORK) -- Major credit rating agency Moody’s warned today that it may downgrade the U.S. credit rating if the government fails to figure out a way to avoid the so-called fiscal cliff at the end of the year.

Credit rating agencies last year issued similar warnings when Congress and the White House were wrangling over the U.S. debt ceiling. While Moody’s did not downgrade the U.S. at the time, S&P, another of the big three agencies, downgraded the U.S. from AAA to AA+.

Despite their dubious role in the global financial crisis, credit rating agencies have an impact on the interest rates governments and businesses pay on their debt.  Lower ratings mean the government may have to pay higher interest rates on some of its $16 trillion in debt outstanding.

The fiscal cliff is what economists are calling the year-end expiration of the Bush-era tax cuts, plus  tax increases and spending cuts that will automatically take place as part of a deal to raise the debt ceiling.


Update of the Outlook for the US Government’s Debt Rating

The US government bond rating remains unchanged at Aaa with a negative outlook. The direction of the US rating and its outlook will most likely be determined by the outcome of budget negotiations during the course of 2013. In particular:

» If those negotiations lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term, the rating will likely be affirmed and the outlook returned to stable.

» If those negotiations fail to produce a plan that includes such policies, we would expect to lower the rating, probably to Aa1.

» The maintenance of the Aaa with a negative outlook into 2014 is highly unlikely unless the method adopted to achieve debt stabilization involved a large, immediate fiscal shock with a resulting unstable economic situation. Such a shock could come from the so-called “fiscal cliff.” In such circumstances, we would await evidence that the economy could rebound from the shock before considering a return to a stable outlook.

It is difficult to predict when during 2013 Congress will conclude negotiations that result in a budget package. The Aaa rating, with its negative outlook, is likely to be maintained until the outcome of those negotiations becomes clear.

It is also worth noting that maintaining the rating outlook assumes a relatively orderly process for the increase in the statutory debt limit. The debt limit will likely be reached around the end of this year, and the government’s ability to meet interest and other expenses out of available resources would likely be exhausted within a few months. Under these circumstances, the government’s rating would likely be placed under review after the debt limit is reached but several weeks before the exhaustion of the Treasury’s resources. Moody’s took a similar action during the summer of 2011 after the debt limit had been reached.

Copyright 2012 ABC News Radio


Top 5 Tips to Fight Junk Debt Lawsuits

George Doyle/Thinkstock(NEW YORK) -- Creditors who buy consumers' old debt for pennies on the dollar have increasingly won bogus lawsuits, but consumers can begin to fight back by taking a few easy steps.

One judge in Brooklyn, N.Y., this week called about 90 percent of credit card lawsuits, often the source of debt junk suits, "flawed."

A common example of junk debt is credit card debt that a private company purchases from banks, or another original creditor. Original creditors or junk-debt buyers can sue the borrower for the money.

Peter Holland, a professor at the University of Maryland Francis King Carey School of Law, wrote the paper "Defending Junk-Debt-Buyer Lawsuits," which was published in the Journal of Poverty Law and Policy in June. In Maryland, one junk debt creditor filed more than 7,000 lawsuits in November and December 2011 alone, he wrote. Another Maryland creditor filed 130 lawsuits on one day in March 2011.

He said many defendants in these lawsuits don't have the resources for an attorney, but he said they can still use the following five tips if they are on the receiving end of a junk debt suit.

1. Don't ignore a lawsuit.

Holland said the most important thing to keep in mind is that more than 90 percent of cases are won by default judgment because the sued party doesn't appear in court.

Holland, who works with borrowers the University of Maryland's Consumer Protection Clinic in Baltimore, said one common tactic of creditors' lawyers is to tell you that you don't need to show up in court.

"People are too scared to show up and defend themselves," he said. "Rule No. 1: Show up in court and make them prove their case. File an answer. Don't ignore it."

2. Contact your state attorney general's office and state bar association.

While many people who have a large amount of debt may not be able to afford to hire an attorney when faced with a junk-debt lawsuit, Holland said many states have other legal services available.

Holland and law students from the University of Maryland provide pro-bono services to the local Consumer Protection Clinic, but he said there were similar services around the country, given the increasing number of junk-debt lawsuits.

"This is the No. 1 case in small claims court. They are clogging the courts across the country. Everybody understands there is rampant fraud in the industry," he said.

3. Check for robo-signing.

Holland said borrowers should look for an indication of robo-signing in the junk-debt documentation. Like the foreclosure robo-signing debacle that led to a $25 billion settlement this year, many creditors also use illegal, robo-signing procedures when buying junk debt.

Defendants should even use the Internet to search the names of the people who signed the documents to make sure they are authentic signatures of real people.

"You'd be amazed. I've seen five different versions of a person's signature. The forgery and robo-signing are rampant," he said.

4. Read the creditor's documentation.

The creditor may also claim that borrowers owe more money than their actual debts because a bank has tacked on extra fees that were never agreed upon.

Holland has seen junk debt repurchased from creditor to creditor as many as six times, with lost paperwork along the way.

"If it's a junk-debt lawsuit, they have to prove a chain of title showing they own it," Holland said.

5. Avoid settlements negotiated in the hallway.

Holland said the opposing attorney will sometimes try to cut a deal with defendants in the hallway outside the courtroom if they seem vulnerable or intimidated. But often these settlements are "set up to make you fail," he said.

"They'll tell you, 'I know you don't want to go before a judge'," Holland said. Then they will set up an unrealistic payment plan that could leave you liable for the full judgment amount if you miss a payment.

Holland, however, suggests you do communicate with the opposing counsel in case you need to ask opposing counsel for supporting documents. If its documentation or arguments are weak, he said you or your attorney might consider calling opposing counsel to ask it to dismiss, which can have "very quick results."

Copyright 2012 ABC News Radio


Collectors Robo-Signing for Credit Card Debt Suits

BananaStock/Thinkstock(WASHINGTON) -- Reminiscent of the foreclosure crisis, a number of credit card companies that are suing to collect their debt are said to be “flawed” and point to “robo-signing” or “robo-testimony.”

“I would say that roughly 90 percent of the credit card lawsuits are flawed and can’t prove the person owes the debt,” said Brooklyn civil court judge Noach Dear, according to the New York Times.

Companies like American Express have filed lawsuits that judges have dismissed because one employee who testified provided generic testimony about the company’s records, which the judge called “robo-testimony.”

American Express sued Felicia Tancreto last year, alleging she owed more than $16,000 on her credit card and had stopped making payments.

Sonya Conway, spokeswoman for American Express told ABC News that the company “strongly disagrees” with Judge Dear’s comments and “we feels consistency of testimony is a good practice.”

“To introduce business records into evidence, similar foundational questions are asked in each case in order to comply with the applicable rules of evidence,” Conway said. “The process of establishing a defaulted customer debt for evidentiary purposes should not change from one case to the next given that our processes are consistent for all customers. However, when this was done in the Tancreto case, Judge Dear characterized the questions and responses as ‘robo-testimony’.”

Adam Levin, co-founder of and an columnist, said “none of this surprises me,” and he recommends consumers speak with an attorney or their state consumer affairs agency if they are told they owe money on a debt that was not processed properly or is not theirs.

“[The credit card companies] are in a frenzy right now to make up for money they’re losing after the government restricted the insane fees these institutions were charging,” Levin said.

Some lawsuits include falsified credit card statements, the New York Times reports.

Tom Pahl, assistant director for the Federal Trade Commission’s division of financial practices told the Times, “Our concerns center on the fact that debt collection lawsuits are a pure volume business.”

Emily Collins, spokeswoman for Citigroup, said “we continually review the effectiveness of our controls and policies for credit card collections, and ensure that affidavits are validated for accuracy and signed by Citi employees with knowledge of the client’s account."

"Citi Cards has a range of programs to support our clients who may be facing financial difficulty, and we make every effort to work with our clients to prevent delinquency,” she continued.

Copyright 2012 ABC News Radio


Lax Student Loan Standards Created Debt Crisis, Report Finds

JupiterImages/Comstock Images(NEW YORK) -- Lax loan standards have left many college graduates struggling to repay private student loans, according to a new study.

A report by the Consumer Financial Protection Bureau (CFPB) and the Department of Education found that the private student loan market grew from less than $5 billion in 2001 to over $20 billion in 2008.  In 2011, the figure declined to less than $5 billion as banks began to tighten credit standards and the number of undergraduates with co-signers hit a high of 90 percent.

“Students were yet another group of consumers that were hurt by the boom and bust of the financial crisis,” wrote CFPB director Richard Cordray in a statement.  “Too many student loan borrowers were given loans they could not afford and sometimes for more money than they needed.  They are now overwhelmed by debt and regret the decisions they made.”

From 2005 to 2007, the report found that school involvement in student loans began to shrink and students began borrowing more than necessary.  And, lenders began making exceptions for students with lower credit scores.

Private lenders gave out money without considering whether borrowers would repay, then bundled and resold the loans to investors to avoid losing money when students defaulted.

Impacted by the recession, in 2009, the unemployment rate for private student loan borrowers who began college during the 2003-2004 academic year stood at 16 percent.  The amount of defaults has grown since then.  According to the report, cumulative defaults on private student loans grew to more than $8.1 billion, and represents more than 850,000 distinct loans.

For many students, student loans are necessary to fund the college experience.  The report found that in 2008, 42 percent of for-profit undergraduates received a private student loan, while only 16 percent of all undergraduates used a private student loan.

In 2011, over 90 percent of private students loans had a co-signer, up from 67 percent in 2008.

“After the financial markets crashed, some common-sense practices returned.  Without investors willing to buy risky loans, lenders were forced to care more about a borrower’s ability to repay," wrote Cordray.

“Now, most lenders make sure that students are not borrowing more than they really need when issuing a private student loan,” he wrote.

Student loan debt has grown to over $1 trillion by some estimates.  Meanwhile, college tuition has doubled in the price in the last decade.

Copyright 2012 ABC News Radio

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