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Surviving With Less Credit

Steve RhodePosted by Steve Rhode
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At ByDesign Financial Solutions, a debt-counseling service in Modesto, Calif., they’re working overtime these days. “Our call volume went up 97% in the past five weeks, which has left us scrambling,” says Martha Lucey, president of the nonprofit agency. “[The callers] are close to the max on their credit cards, and they just can’t figure out how to manage. We’ve seen credit-card companies decreasing lines of credit, and the [debtors] don’t have any room left. They just can’t juggle things like they used to.”

The debt binge was fueled by easy money and the belief that prices of assets — those of houses in particular — never went down; only interest rates did. That era is over. It will be replaced by what will be one of the more painful, and consequential, economic chapters in our history: the great deleveraging of America.

But the credit crunch is not anywhere near over. “It took 20 years for us to get into this situation — leveraged to the hilt — and it will take more than a couple of years to unwind it,” says Paul Ashworth, senior U.S. economist at Capital Economics. “And even when we get back to normal, that normal is not going to be the same. We won’t have this sort of freely available credit that we had before for households and businesses. It’s going to be a different reality — a more austere one — when we come out on the other end of this.”

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