It's a scenario we're all too familiar with: consumers take on too much debt and, because of a combination of shady lending practices, a soft job market, and the increasing cost of living, find that they have no hope of paying off that debt. It happened with mortgages, and now the scenario is poised to repeat itself with credit cards as more and more cardholders give up hope of ever paying off their balances.
In the past, credit card write-offs stayed pretty much on par with layoffs. Now lenders are seeing their number of uncollectible debts increase more rapidly than job losses.
The bank stress-test predicts that America's 19 major banks could lose at much as $82.4 billion in bad debts by the end of 2010. Experts believe that the figure could go much higher if the national unemployment rate reaches 10% (it's currently at 8.9%). In such a scenario, the credit card industry could lose as much as $186 billion.
In recessions past, homeowners were able to tap their home equity to stay afloat. That's no longer an option for millions of homeowners. And, in a survival situation, "optional" bills, like credit card payments, are often the first to go. This doesn't paint a very optimistic future for the banks. Only time will tell which ones survive and which ones fold.
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