July Drop in National Credit Card Defaults is Misleading

In July, the number of people who defaulted on their credit cards dropped for the first time in several months, leaving many financial experts to wonder about the cause.

In the midst of speculation that the recession may be turning around, bankruptcy filings continue to climb and many debt management and bankruptcy attorneys cite a rise in the number of people leveraging retirement funds to stay afloat. Additionally, running contrary to the default reports is evidence supplied by some credit card issuers that in July, there was an increase in those who fell behind on payments, but have yet to reach default status.

Most of the major players in the industry, Bank of America, American Express, Capital One Financial and JPMorgan Chase, are in agreement that the number of accounts that ended up in default in July fell. Thus, there was an increase in the number of payments made on time. For some, that can be a sure sign that some aspects of the economy have improved. However, looking closer at the statistics, the correlation between the numbers and the status of the economy is not so clear.

With an estimated 6 million people living on unemployment benefits, many of the aforementioned lenders have eliminated accounts held by those in the highest risk pool. With that demographic completely out of the picture, the number of defaults will obviously decrease. In many instances, lenders are accepting less than the standard monthly minimums, which leads to more on-time payments but puts the consumer deeper in the hole. Perhaps most troubling, many cash-strapped consumers are pulling money from retirement accounts to keep from getting behind.

Overall, few experts will go on record saying that the decrease in credit card defaults is a sign of America's improving financial health. Basically, it all comes back to unemployment. If jobs are scarce, credit card payments will be too.

There been signs of an improving home sales market. However, that can be attributed to a brief run on low-priced homes, foreclosure investing and wholesalers absorbing large tracts of unfinished or bargain homes at a discount.

Unfortunately, banking experts can cite mountains of data to suggest that in lean times, people use credit cards as cash draws. If unemployment remains a challenge, the country will continue to look to their credit lines for money to bridge months of dwindling paychecks. As summer winds down and the holiday seasons emerge from earlier-than-ever marketing campaigns designed to encourage economic stimulation, consumers are expected to once again overspend and thus tilt the growth in default numbers back to positive early in the New Year.

If the wave of holiday over-spending joins the unemployment headwinds, credit card defaults, credit bureau reporting and most likely, bankruptcies, will once again spike. Currently, bankruptcy filings are at their highest levels since before 2005, when legislation was enacted to cut back on the number of bankruptcies.

If you are behind on your credit card payments, don't eait another day to speak with a bankruptcy attorney. In North Carolina, call the Law Offices of John T. Orcutt at +1-833-627-0115 to set up a free debt consultation.