Your Financial Future: Scrutinize your use of credit
Recently, the Fitch Rating Service downgraded the U.S. long-term credit rating to AA+, down from AAA. This was only the second time in history that this happened; the other was in 2011. It took the action because of concerns of the growing national deficit and dysfunction in Washington. This could make it more expensive for the government to borrow money.
The recent debt ceiling negotiations came within days of the government defaulting on paying its bills. While the compromise forced by the House cut some future spending to secure passage, it probably was not enough. Fitch said, 鈥淭hey expected deterioration over the next three years, an erosion of governance and a growing general debt burden,鈥� which is a concern.
These issues have been going on for over 20 years. They noted that the government deficit will rise to 6.3% of gross domestic product in 2023, from 3.7% in 2022. The size of the national deficit has been running out of control for decades. Currently the national debt is $32.61 trillion. For comparison, it was $10 trillion in 2008. To see how big the problem is, visit www.USDebtClock.org.
Politicians keep trying to pass legislation without regard or consideration of the deficit. President Biden recently tried to forgive billions of dollars of student loans. He was only stopped when the Supreme Court ruled that he did not have the authority to take the action without permission from Congress. The money was government funds that was lent to student borrowers. Forgiving these funds would further hurt the deficit and be inflationary. The borrowers will restart making payments after a three-year pause caused by the pandemic. The extra-long delay also added to the problem.
Moody蘑菇视频, another credit rating service, cut 10 U.S. banks鈥� ratings this week. It is also reviewing some other major lenders. As we saw earlier in the year when three banks failed, these institutions are under increasing stress as interest rates rise.
These banks have to balance their investments in the environment of quickly rising interest rates. They face rising regulatory cost and increasing payroll issues. Some countries are considering changes to regulations like Italy recently did by imposing a windfall tax. On top of this, the banks must be prepared to deal with the effects of a possible recession on their customers鈥� ability to repay loans on time. It is a juggling act in this sector.
On an individual basis, credit card balances jumped in the second quarter and are above $1 trillion for the first time. Between April through June, personal indebtedness increased by $45 billion or 4%. This took the total balances over a trillion for the first time. Also, the Fed蘑菇视频 measure of credit card debt 30 days or more past due increased to 7.2%. This is the highest rate since the first quarter of 2012.
Inflation probably plays a role in both of these increases. Everything costs more and Americans typically want everything now instead of saving to buy something. Too many people do not calculate the cost of credit card interest into their purchases. It is some of the highest in the country and has gone up substantially due to Fed interest rate hikes. You should strive to pay your balance in full every month.
Everyone needs to look at their use of credit, whether it is people at home, work or in Washington. Borrowing is not free and must be paid back. Make sure you have a plan in your household to handle these situations.