The next phase: credit card crisis

The US may be moving into the next phase of the mortgage crisis. It's called the credit card crisis. Which means there may be more defaults, lower spending limits, and perhaps higher interest rates for the 75 percent of Americans who have credit cards.

When times get tough, you do what you have to do to pay your bills. For more people, that means maxing out credit cards to put food on the table and gasoline in the family car, even paying the mortgage. Financial experts say it's a road to disaster.

When James Harris gassed up in Oakland Thursday night, he used his debit card because he has a word for credit cards.

"Death. Credit cards are death. They don't do us any good," said James Harris.

Living off credit is not doing a lot of Americans much good as their debt and defaults continue to rise.

"Well, this is going to be as bad as the recession of the early 90's," said Tom Davidoff, Asst. Professor at Berkeley's Haas School of Business.

Davidoff says we're seeing the next phase of the worsening economy.

"Wages are lower. People make less money. That means, one, they can't pay the bills they already have and, two, they're feeling stretched so they're not going to pay for stuff with cash. They're going to pay with credit cards. That's going to raise their credit card balance and make it more attractive to wipe out the debt by default," said Tom Davidoff.

Nationwide, the credit card delinquency rate in the final quarter of last year jumped 32 percent over the previous year according to TransUnion.com.

In California over the same period, credit card debt jumped nearly 6 percent, one of the highest increases in the nation.

Not only are people using credit to buy essentials like food and higher-priced gasoline, but for much riskier purposes.

"Yes, we're definitely seeing people use it for their mortgage, which is extremely scary, because they're going to run up their credit card debt. Ultimately they're not going to be able to pay their mortgage if that's the emergency use they're using it for," said San Francisco credit consultant Erica Sandberg.

Sandberg says the average credit balance is around $9,000 dollars. And because of tightening credit, she says even people who make payments on time could see their double digit interest rates go even higher.

It's a trap that James Harris is trying to avoid.

"We have three credit cards between us. Not very much on them. Rather just pay it off quick and move forward that way," said James Harris.

In the next few months, taxpayers will be getting stimulus checks from the government,up to $600 dollars for individuals, $1200 for couples.

Financial experts say they best thing you can do for your budget is to pay down your debt and not just splurge.

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