Posted on Sun, Oct. 12, 2008

Maria Osorio, 62, of Sunrise, never meant to run up her credit cards the way she did. But the companies sent them so freely. And they were so easy to use. First it was gifts and big items. Then it was gasoline, and that tasty baked chicken at the Golden Corral restaurant, then even groceries.

Suddenly the charges on her eight credit cards totaled $14,000. And she couldn't always pay the monthly minimums. ''The interest rates were killing me,'' she said. ``If I sent in $100, only $20 of it was going to the principal. The pressure was building. I started getting the calls.''

She was far from alone. Since 2003, Americans have increased their credit card debt by an astounding $200 billion, to a record total of almost $1 trillion, the Federal Reserve says.

And now there's a financial crisis, and people might be even more inclined to charge up their credit cards with basic necessities. But just as suddenly those cards, those little plastic sugar daddies that for so long let us have just about anything we wanted, are turning against us. Playing hard to get. Credit limits cut. Interest rates raised. Card-balance rollovers discouraged.

''People are overextended, losing jobs, losing homes, losing 401(k)s,'' says Meg Green, a North Miami certified financial planner. ``There's no place to go but credit cards, and they're maxed out.''

Across the nation, credit card debt hit an average $1,717 per card in the second quarter of 2008, up 8.6 percent from the same period in 2007, according to the credit agency TransUnion.

Delinquencies on those cards in the second quarter of 2008 were up 14.3 percent from a year earlier. Overall, the national delinquency rate was 1.04 percent of credit card charges. Nevada was highest with 1.72 percent. Florida was second with 1.34 percent.

Delinquency rates were cushioned by two big factors. First, credit card companies were cutting customer credit lines -- from a $15,000 limit to $5,000, for example. Lower limits meant less owed, and so fewer delinquencies.

Second, the federal government's $170 billion economic stimulus payments started arriving in the second quarter, as taxpayers -- eager for the cash -- filed their returns early in order to get the payments. Some 42 percent of them used the money to pay down credit card debt, according to TransUnion, the credit reporting agency.

What the delinquency rate will be for the third quarter of 2008, with the stimulus money spent and the economic crisis under way, is anybody's guess.

CHARGE-OFFS RISING

But Bank of America, one of the nation's largest credit card issuers, might provide a clue. It reported last week that while still profitable in the third quarter, it was hit with significant losses related to delinquent credit cards. Net charge-offs rose to $1.24 billion, representing a charge-off rate of 6.14 percent.

In a new report, Credit Cards at a Tipping Point, the consulting firm Innovest Strategic Value Advisors predicts industrywide charge-offs will peak at 10 percent in the third quarter and that banks will charge off $18.6 billion in delinquent credit card accounts in the first quarter of 2009. It warned that as banks restrict such credit sources as home-equity loans, often used by consumers to pay credit card debts, it might drive the customers into default, increasing card charge-offs.

Banks also are sharply limiting offers that let credit card customers roll over their debt on one card to another at attractive, introductory teaser rates.

Card issuers, in a credit crunch themselves, are using various means to cut credit to their customers, industry officials say.

''Credit card companies are lowering credit limits,'' says Carol Kaplan, spokeswoman for the American Bankers Association. ``It's tougher to get a new card. They're raising lending standards so people with credit scores in the 600s now may have to have 700s to qualify for new cards. They're closing inactive accounts. If you have unused cards with big lines of credit that you're saving for a rainy day, you'd better use them. Put something on them or they'll be gone.

''You have to be very conscious of your credit history,'' she went on. ``You have to pay all your bills on time. Not just credit card bills -- all bills. If they see you're not paying your Sears card, they know it's probably just a matter of time before they're hit. They're trying to cut their losses.''

Unfortunately, the economic crisis comes at a time when American consumers have been living beyond their means for decades. By 2007, personal consumption had reached $10 trillion a year. While housing values were booming, they financed purchases with home equity loans.

''From 2001 to 2006 homeowners cashed out $1.2 trillion in home equity, to cope with mounting debt and basic living expenses,'' says José Garcia, of the Demos financial consulting firm.

When that started to dry up, consumers turned to credit cards. And the amount on cards started to approach that $1 trillion mark.

But that, too, started to turn sour in 2007, even before the economic crisis. Consumer spending was up by only 5.5 percent that year, the weakest performance since 2003, the Commerce Department said. Spending slowed even more in the first half of 2008. And in the third quarter, as the credit chickens came home to roost, personal spending dropped for the first time in years -- by an annualized 2.7 percent.

FACTORS IN RATES

Credit card interest rates today reflect two opposing forces. On one hand, companies are raising some rates to restrict customers' credit and reduce their own credit risk. On the other, the Fed last week cut its interest rate by half a percentage point, which usually lowers some credit card interest rates.

How will that play out? As always, those who have will get.

''Regardless of what the Fed does, individual cardholder rates depend on their credit history,'' says Kaplan, the bankers association spokeswoman.

Credit history and the ever-present FICO scores play a big role, says April Lewis-Parks, director of Consolidated Credit Counseling Services' Broward office.

Customers with FICO scores above 750 might have rates as low as 6 percent, she says. Those with credit scores between 650 and 750 might be getting 16 percent to 18 percent. Those below 600 might pay 22 to 28 percent. Those with a missed or late payment on a credit card bill -- or any other bill -- might face rates up to 39 percent.

Caught between so many forces, credit card customers are running into trouble, says Lewis-Parks: ``Our call volume is up 30 percent over last year. People are in over their heads. And the balances they're carrying are up. Last year the average was $6,000 to $8,000. Now it's $14,000 to $24,000. And we're getting more middle-class and affluent people, not just low-income.

''People are desperate,'' she went on. ``When ARMs [adjustable rate mortgages on homes] reset to higher rates, people have to live on credit cards more. And if they're in debt on credit cards, they also tend to have big home-equity balances.

``It's hard for people to change the way they live. We've always advised against using credit cards for things like groceries and gas. But more people are doing it.''

In the case of Maria Osorio and other clients, Lewis-Parks' organization is able to consolidate credit card debts and negotiate with credit card companies for lower interest rates, even lower balances. Osorio already has paid off two of her eight cards and is making progress on the others.

''And I'm not using my cards anymore,'' she says.

But some who approach Lewis-Parks have so much debt and so little income that she can't help them. ''There's a pool of people who have lost their jobs, and their income is cut and they just don't have the money even for lower payments. I think a lot of them will just default,'' she says.

Green, the financial planner, is no fan of the way credit card companies treat customers. ''The rules have got to change,'' she says. ``They have to give credit only to people who have a reasonable shot at paying it back.''

But she blames credit card users as well: ``Why were people spending money they didn't have in the first place? Where is it written that you can forget the difference between want and need?''