More Americans are relying on credit cards as their wages stagnate or shrink and food/fuel prices continue to rise.
After-tax income adjusted for inflation fell 0.1 percent from January through May, according to figures from the Commerce Department. The drop came as Labor Department data showed energy prices rose 8.2 percent and food climbed 2 percent during the same period.
Companies that target low-income consumers are also reporting that their customers are cash-strapped. Many of them are using credit cards to pay for necessities such as gas and food. This is a huge problem that will eventually snowball creating another surge in bankruptcy filings amongst those who earn less than $35,000 a year. Individuals in that income bracket are more likely to file bankruptcy because they are the least likely to have the resources to recover from a job loss, salary cut or financial emergency which prompts that they deplete their savings accounts and/or retirement.
There are three major issues which are converging to create another surge in bankruptcy filings:
- High unemployment. In the past Americans tended to avoid filing bankruptcy because they believed they would be able to find work within a few months. But now, a few months of unemployment has transformed into more than a year for many. For those individuals, bankruptcy is often the best way to keep destitution at bay.
- Rising prices make it hard to pay bills and save. Fuel and food are necessitates which are rising in price. Americans who rely on their credit cards to pay for these basics will soon find themselves at the end of their credit lines. When that happens, only bankruptcy will be able to offer them the debt relief they need.
- Foreclosures are sending many to bankruptcy. Because the foreclosure crisis has continued and the mortgage industry has been unable or unwilling to respond effectively, more homeowners are relying on the power of bankruptcy to save their homes.
(source: Bloomberg.com )