Delinquencies and Tighter Lending Could Make Debt Consolidation Much Tougher In The Future

[Aug 21, 2009.]

 

Fed's Quarterly Survey Reveals Creditor Believe Credit Crunch Will Persist
In the Federal Reserve's latest survey of creditors and banks, data showed that lending standards grew even tighter for almost every type of consumer debt. Ranging from personal loans to credit cards and residential mortgages, senior loan officers commented that lending guidelines and requirements continued to tighten in the months of May, June, and July. Fortunately, the percentage of lenders reporting tougher guidelines was substantially lower compared to the figures reported just a year ago--however, the current numbers still show lenders quite hesitant to make new loans.

Most banks cited the uncertainties of the current economy as their major reason for tightening credit. In the survey, 22% of mortgage lenders tightened guidelines on prime mortgages while 46% tightened requirements on nontraditional loans. Credit card companies and home equity lenders came in with an identical 36% of lenders citing tougher requirements. Interestingly, 4% of home equity lenders actually said they were loosening up loan standards. On the other hand, there were no credit card companies or mortgage lenders who reported easing standards.

Delinquency rates also rose to 8.27% for real estate loans, while commercial loans also increased to 3.73%. The charge-off rate reported by credit card banks reported another record figure of 2.65%--before this recent credit crunch, the highest figure stood at 1.70%.

What Options Are Left For Borrowings Looking To Consolidate Their Debts?
Given the higher number of delinquencies and tighter lending standards, borrowers are inevitably going to have a tougher time consolidating their debts. The two most common types of debt consolidation involve refinancing a current mortgage, or taking out an additional home equity loan. Both of these options are quite popular due to the fact they allow access to significantly lower rates of interest. But if lenders are already unwilling to issue new loans for prime borrowers, those with bad credit will have an even tougher time. As a result, those looking to consolidate credit card debt or other personal loans may have to put off hopes for cheaper loans in the near future.

Oftentimes, borrowers can benefit more from improving their credit history than consolidation itself. And as it stands, some might fight it impossible to consolidate unless they first boost their credit scores.  Before enrolling in a specific debt consolidation program, consulting with a loan specialist can help determine what opportunities are available. These debt programs often include helpful information to rebuild a damaged credit history and provide tips to help you successfully obtain a loan in this tougher economy.

 

About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.