Dec 23, 2:33 PM EST

*Unpaid Credit Cards Bedevil Americans*

By RACHEL KONRAD and BOB PORTERFIELD
Associated Press Writers

SAN FRANCISCO (AP) -- Americans are falling behind on their credit card
payments at an alarming rate, sending delinquencies and defaults surging
by double-digit percentages in the last year and prompting warnings of
worse to come.

An Associated Press analysis of financial data from the country's
largest card issuers also found that the greatest rise was among
accounts more than 90 days in arrears.

Experts say these signs of the deterioration of finances of many
households are partly a byproduct of the subprime mortgage crisis and
could spell more trouble ahead for an already sputtering economy.

"Debt eventually leaks into other areas, whether it starts with the
mortgage and goes to the credit card or vice versa," said Cliff Tan, a
visiting scholar at Stanford University and an expert on credit risk.
"We're starting to see leaks now."

The value of credit card accounts at least 30 days late jumped 26
percent to $17.3 billion in October from a year earlier at 17 large
credit card trusts examined by the AP. That represented more than 4
percent of the total outstanding principal balances owed to the trusts
on credit cards that were issued by banks such as Bank of America and
Capital One and for retailers like Home Depot and Wal-Mart.

At the same time, defaults - when lenders essentially give up hope of
ever being repaid and write off the debt - rose 18 percent to almost
$961 million in October, according to filings made by the trusts with
the Securities and Exchange Commission.

Serious delinquencies also are up sharply: Some of the nation's biggest
lenders - including Advanta, GE Money Bank and HSBC - reported increases
of 50 percent or more in the value of accounts that were at least 90
days delinquent when compared with the same period a year ago.

The AP analyzed data representing about 325 million individual accounts
held in trusts that were created by credit card issuers in order to sell
the debt to investors - similar to how many banks packaged and sold
subprime mortgage loans. Together, they represent about 45 percent of
the $920 billion the Federal Reserve counts as credit card debt owed by
Americans.

Until recently, credit card default rates had been running close to
record lows, providing one of the few profit growth areas for the
nation's banks, which continue to flood Americans' mailboxes with
billions of letters monthly offering easy sign-ups for new plastic.

Even after the recent spike in bad loans, the credit card business is
still quite lucrative, thanks to interest rates that can run as high as
36 percent, plus late fees and other penalties.

But what is coming into sharper focus from the detailed monthly SEC
filings from the trusts is a snapshot of the worrisome state of
Americans' ability to juggle growing and expensive credit card debt.

The trend carried into November. As of Friday, all of the trusts that
filed reports for the month show increases in both delinquencies and
defaults over November 2006, and many show sequential increases from
October.

Discover accounts 30 days or more delinquent jumped 25,716 from November
2006 and had increased 6,000 between October and November this year.

Many economists expect delinquencies and defaults to rise further after
the holiday shopping season.

Mark Zandi, chief economist and co-founder of Moody's Economy.com Inc.,
cited mounting mortgage problems that began after this summer's subprime
financial shock as one of the culprits, as well as a weakening job
market in the Midwest, South and parts of the West, where real-estate
markets have been particularly hard hit.

"Credit card quality will continue to erode throughout next year," Zandi
said.

Economists also cite America's long-standing attitude that debt - even
high-interest credit card debt - is not a big deal.

"The desires of consumers to want, want, want, spend, spend, spend -
it's the fabric of our nation," said Howard Dvorkin, founder of
Consolidated Credit Counseling Services in Fort Lauderdale, Fla., which
has advised more than 5 million people in debt. "But you always have to
pay the piper, and that can be a very painful process."

Filing for bankruptcy is no longer a solution for many Americans because
of a 2005 change to federal law that made it harder to walk away from
debt. Those with above-average incomes are barred from declaring Chapter
7 - where debts can be wiped out entirely - except under special
circumstances and must instead file a repayment plan under the more
restrictive Chapter 13.

Personal finance coaches say the problem is most grave for individuals
who are months delinquent or already in default - like Kenneth
McGuinness, a postal clerk from Flushing, N.Y.

His credit card struggles began nine years ago, when he charged his
son's college tuition and books. He thought he was being clever: His
credit card's 6 percent "teaser" interest rate was lower than the 8.6
percent interest on a college loan.

McGuinness, 61, soon began using Citibank and Chase cards for food,
dental work and copays on doctor visits and minor surgeries. Interest
rates surged to 30 percent. Now he's $37,000 in debt and plans to file
for bankruptcy in February.

"I tried to pay what I could and go after the high-interest accounts
first," McGuinness said. "But it just kept getting higher and higher,
and with late charges and surcharges I was going backward."

In the wake of the jump in defaults on subprime mortgage loans made to
borrowers with poor credit histories, banks have been less willing to
allow consumers to consolidate credit card debt into home equity loans
or refinanced mortgages. That is leaving some with no option but to miss
payments, economists said.

Investors also are backing away from buying securitized credit-card
debt, said Moshe Orenbuch, managing director at Credit Suisse. But that
probably has more to do with concerns about the overall health of the
U.S. economy, he said.

"It's been getting tougher to finance any kind of structured finance -
mortgages, automobile loans, credit cards, student loans," said
Orenbuch, who specializes in the credit industry.

Capital One Financial Corp. reported that delinquencies and defaults are
highest in regions where troubled mortgages are concentrated, including
California and Florida.

Among the trusts examined, Bank of America Corp. had the highest
delinquency volume, with overdue accounts valued at $5 billion. Bank of
America defaults in October were almost 200 percent higher than in
October 2006.

A spokesman for Charlotte, N.C.-based Bank of America declined to comment.

Other trusts - including those linked to Capital One, American Express
Co., Discover Financial Services Co. and those containing "branded"
cards from Wal-Mart Stores Inc., Home Depot Inc., Lowe's Companies Inc.,
Target Corp. and Circuit City Stores Inc. - also reported striking
increases in year-over-year delinquency and default rates for October.
Most banks and other financial institutions holding credit card debt on
their own books also reported double-digit increases in delinquencies.

The one exception in October was JPMorgan Chase & Co.'s credit card
trust, which reported declines in both delinquencies and defaults. A
Chase spokesperson attributed this to its focus on prime borrowers and
aggressive account management.

By contrast, Capital One executives told analysts last month that the
company projected 2008 write-offs of credit card debt to be at least
$4.9 billion. This projection, analysts were told, took into account
growing delinquencies and potential effects if the housing market
continued its downward slide.

Capital One spokeswoman Julie Rakes said the increase in delinquencies
could be due to an accounting change last summer, which shortened the
grace period between when statements were issued and the due date.

Capital One also reported that the number of accounts 90 days or more in
arrears had increased between October and November. More than 1.2
million of Capital One's 30 million accounts were either delinquent or
in default.

Many personal financial coaches expect this trend to accelerate in 2008
- particularly among people who took out untraditional loans whose
interest rate has risen, requiring owners to pay mortgages several
hundred dollars more than just a year ago.

"You're looking at more and more distress - consumers desperately trying
to preserve their credit lines, but there's nowhere else to go," said
Robert Manning, director of the Center for Consumer Financial Services
at Rochester Institute of Technology. "It's like a game of dominoes."