Feb 16, 2023

Banks Are Worried About A Recession

There is no question that the banks are demonstrating that they are concerned about the general public, inflation, and rising interest rates. More in this blog.

Banks Are Worried ABout A Recession

Recession is coming whether we want to believe it or not! 

The banks are definitely showing that they are worried about consumers, inflation and rising interest rates.

Source: Bank of America

For example, when it comes to consumer debt, banks are showing that they are increasingly concerned about the financial situation of their customers. A charge-off is an accounting term used by lenders and creditors to indicate that a debt has been written off as uncollectible. Meaning - the person paying the bill is BROKE. The creditor has given up trying to collect on the debt after the debtor has failed to make payments for an extended period of time - And we all know creditors don’t give up easily.

A charge-off is typically reported when a debtor has failed to make payments for 180 days or more. The creditor will then write off the debt as a loss and close the account, which will be reported as a charge-off on the debtor’s credit report. This negative item can stay on your credit report for up to seven years, making it difficult for you to get approved for new lines of credit or loans in the future. The increasing number of bank charge-offs is an indication that banks are worried about their customers’ financial situations and are taking steps to protect themselves from potential losses due to unpaid debts. 

Banks have increased their line item on their financial statements to account for increased numbers of charge offs.

They think there is going to be a massive increase in in consumer defaults. This doesn’t bode well for the consumer. It also means banks are likely to be stingier with loans, credit cards…etc. It may be harder to buy things with credit over the next couple of years which will slow the overall economy.

On the consumer side… 

It’s important to note that even though a debt may be charged off, you still owe it and are legally obligated to pay it back. The creditor may choose to sell the debt or hire a collection agency in order to recoup some of their losses, so it’s important that you stay aware of any attempts by creditors or collection agencies to collect on the debt. If you find yourself in this situation, it’s important that you take action quickly in order to avoid further damage being done to your credit score and financial health.

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