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Credit Card Usage Up, Los Angeles Bankruptcies May Follow

October 10, 2012

New Federal Reserve data shows that consumer credit card usage has rebounded after declining sharply back in the summer mockcreditcard.jpg

Prior to that, it had been on the upswing for about a year, those 12 months marking the first increase since the market crashed.

Los Angeles Chapter 7 Bankruptcy Lawyer Vincent Howard of HOWARD LAW
understands this wouldn't necessarily be a bad thing, except for the fact that wages have remained stagnant after dipping significantly in the last couple years.

Rising credit usage can be a sign of consumer confidence - which is a plus. However, it appears many people may not be financially prepared to take on more debt. This may ultimately lead to more bankruptcies, if people aren't able to keep up the pace.

According to the Federal Reserve, U.S. Consumer credit climbed by more than $18 billion in September, following a nearly $2.5 billion dip back in July. In looking at the amount of revolving credit, which measures actual credit card use, we saw an increase of more than $4 billion. Non-revolving credit, which is for things like auto and student loans, jumped by nearly $14 billion.

But we also have to look at this in the context of the U.S. unemployment rate, which reached 7.8 percent in September. This is a drop from the last few previous months, but it's still fairly high.

Consider also that the Consumer Financial Protection Bureau is stepping in to revise the 2009 Credit CARD Act, a portion of which unintentionally blocked stay-at-home parents and others from getting credit cards. The law requires credit card companies to consider the applicant's ability to pay before issuing a card. However, in its strictest interpretation, card companies haven't been able to take into account the entire household income - so stay-at-home parents and retirees have been having a tough time getting credit cards. This change can be marked as a positive, but it also means more people will have credit and, specifically, more people who aren't necessarily financially stable on their own. In the event of an unforeseen divorce or death, the results could potentially wreak havoc on these peoples' credit.

If you do get in over your head with credit debt - which is certainly easy enough to do - a Chapter 7 bankruptcy will allow you to wipe out those debts and start anew.

Then, once you emerge from bankruptcy, you can still use credit cards. In fact, it's almost a necessity to help rebuild your credit score. But as you do that, keep these few things in mind:

1. Be cautious of your spending. People tend to spend more when they aren't parted immediately with their cash. A credit card allows you to delay the sting of that loss, so people are more likely to overspend with them. Of course, there will always be emergencies you can't anticipate, but be aware of your every-day purchases - that $4 latte, the spur-of-the-moment sweater. Those are the kinds of things that are going to creep up and bite you later.

2. Pay your credit card bills on time and in full every month. If at all possible, get ahead with it so you can pay it off every month in advance. Once you start getting into the trap of a minimum payment, you will quickly find yourself in trouble.

3. Don't borrow on your cards. Your credit cards are not an additional source of income, and once you begin to think of them as such, you may run into problems.

Los Angeles Bankruptcy Attorney Vincent Howard at HOWARD LAW can help. You can reach us toll-free at 1-800-872-5925 or send us a message online.

Additional Resources:
Consumers, after brief rest, start saying 'charge it' again, Oct. 5, 2012, Staff Report, Reuters

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Special Challenges for Retirees Facing Los Angeles Bankruptcy, Oct. 8, 2012 Los Angeles Chapter 7 Bankruptcy Lawyer Blog