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In 'over our heads'
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December 26, 2001: 4:55 p.m. ET
Credit card company write-offs set to hit a record high, an S&P report finds.
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NEW YORK (CNN/Money) - Thanks to the economic recession and rising unemployment, Americans will have a harder time paying what they owe on their credit cards. As a result, credit card companies will charge off a record 8 percent in uncollected debt in 2002, according to a report released Wednesday by Standard & Poor's called "Over Our Heads: Can U.S. Consumers Repay Their Debts in the Recession?"
U.S. consumers have outspent their incomes and acquired record debt since the late 1990s, particularly on credit cards, the report found. What's more, said the report's author, S&P chief economist David Wyss, zero-rate auto-financing deals and low mortgage rates have further encouraged the build-up of debt.
Another factor has been Americans' savings rate - the net of what we earn versus what we spend. It has sunk to historic lows in the past two years, averaging about 1 percent in 2000 and most recently 0.9 percent in November this year, Wyss said. The savings rate in 1994 was 9 percent.
Wyss points to non-mortgage debt as the most worrisome. "People who borrowed to buy a house should survive this mild recession, but those who were borrowing to buy vacations may not," he said, noting that those who use credit cards to pay for non-essentials are more likely to default on their credit card payments.
What you can do
Of course, just because a credit card company writes off uncollected debts doesn't mean it will stop seeking payment from its delinquent card holders, Wyss said.
The average American household with at least one credit card has $8,523 in credit card debt, and the average credit card interest rate was 14.4 percent in November, according to CardWeb.com.
If you're carrying too heavy a debt burden, there are several steps you can take to lighten your load. One of the smartest is to pay off your highest interest-rate debt first, while continuing to make at least the minimum payments due on your other bills. (For other strategies, read Money 101: Controlling Debt.)
You should also trim spending on non-essentials and put the extra money toward reducing your outstanding balances. (For ideas on how to live more frugally, click here.) Giving your credit card a rest and paying cash whenever possible is also a good tactic since you're likely to spend less when you see just how much you're shelling out. 
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