It has begun – and it is ramping out in full force. The banks are rapidly closing credit card accounts where the consumer has a zero balance; and on the cards where a balance is owed, they are reducing the available credit to a few dollars more than is owed. They are reacting faster than during the Great Recession – for two reasons. They learned their lesson last time and the anticipated fall out from the Pandemic is earth shattering. But wait, I forgot the third most important reason – they care about their stock price – not you!

Yahoo Money, on July 22, states it succinctly:

As the economic fallout of the pandemic continues to unfold, banks are rushing to close credit card accounts or slash credit limits to curb their risk. One in 4 Americans with credit cards said they had an account involuntarily shut down from mid-May to mid-July, while 1 in 3 said their credit limit was reduced, according to a new report from that surveyed 1,003 credit cardholders.

This follows a similar rate of reductions in April and comes as many Americans battle joblessness and uncertain economic futures, but now with reduced access to credit.

“These are really big numbers,” said Matt Schulz, chief industry analyst at CompareCards. “It means that an awful lot of Americans had one of their financial security nets taken out from under them in one of the most difficult economic times in American history.”

The pullback by credit card issuers is occurring more frequently than in 2008 during the Great Recession, when 1 in 6 cardholders reported reduced limits or involuntary account closures, according to a 2010 study by Phoenix Synergistics, a market research firm for financial services companies. “This is, in a lot of ways, a much bigger issue today than it was in the Great Recession,” Schulz said. “It makes sense that banks are taking an even harder line with lending because there’s so much that they don’t know, and they’re so nervous about risk.”

While no surprise – it means you need to be aware. If you are relying on the “available credit” on your cards to help you get through the loss of your job or business during the Pandemic – it is not gonna work. I will add another – if you are relying on the Federal government to help with continued PUD unemployment – it is not gonna be the way you want it. I don’t know what will come out of Congress next week with the Federal PUD to expire at month’s end. One thing for certain, if Trump wins in November, or if Congress remains split (I think likely), whatever assistance that comes before November – will be gone after the election.

These are not good times – they are unprecedented and potentially may be the worst of times for many. You need to preserve cash. If you have no savings – no cash – like many Americans – you need to find some. If that means tapping out your available credit by cash advances now – then so be it. I deplore paying the obscene interest (29% +), but there are alternatives to that after you have their money. We can do debt resolution to settle – for 30% – 40% of the amount borrowed – with no interest. There’s also the benefits of bankruptcy. Of course, you don’t want to do this – but I will say it again, “If you have no available credit and no cash, you will have nothing to pay for the essentials you need.”

Extreme circumstances – demand extreme measures. I say protect yourself – no one else will. Once the credit is tapped out – you stop paying on the debt and seek help on getting out from under it.

That’s how I see it. Meanwhile, enjoy the nice weather and have fun – but remember to social distance and wearing masks!


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