How the Fiscal Cliff Could Ruin the Good Times for Credit Card Users

NEW YORK ( — The fiscal cliff is getting closer to becoming a reality. Congressional Republicans and President Barack Obama still seem far apart. Statistics and projections show the painful consequences with tax increases for many consumers. Higher tax payments will be bad news for household budgets that are already stretched to the limit.

Here is how your credit card account could be affected if a deal is not reached:

Increase in credit card debt

Higher tax payments mean less money will be available to consumers to pay down personal debt. It may also force some households to turn to credit cards to pay for the essentials, running up credit card balances.

It could push some U.S. families off their own cliffs of debt.

This comes at a time credit card debt is increasing. The average credit card debt per American borrower increased to $4,996, up 4.9% in the third quarter from year-ago levels, according to a report released by TransUnion. The same report showed delinquencies in credit card accounts are also on the rise. Late payments at least 90 days overdue slightly increased to 0.75% during the July-September period, up from 0.71% in the third quarter of 2011. The late payment rate was 0.63% in the second quarter of 2012.

Tightened lending

Some economists predict falling off the fiscal cliff could also mean the economy plunges back into a recession.

It has taken more than three years for banks to loosen lending standards slightly for credit cards. If this creates another recession, we can expect issuers to tighten their standards for approval, cut credit limits on existing accounts and approve lower limits on new accounts. If consumers stop spending, banks lose money. This may lead to an increase in interest rates and fees as banks try to make up for lost revenue.

Higher interest rates