For Chris G., sliding into debt -- $25,000 worth of debt -- was, unfortunately, all too easy.
The unsolicited credit cards that kept coming in the mail permitted Chris to maintain the style of living she and her husband had grown accustomed to before she quit her $25,000-a-year job six years ago to raise the first of her two children.
"At the beginning, I had only four credit cards -- a Visa, a MasterCard and two store cards," recalled the Silver-Spring woman, who agreed to talk on the condition that her identity not be disclosed.
Then, thanks to her previous good credit history, the unsolicited credit cards began pouring in. "They just rolled in," she said. "If you're a credit-card addict like I am, you use them. In the end, I had five Visa cards from different banks that sent them to me to use free."
With thousands of dollars of credit available from each card, "We just kept borrowing and borrowing and borrowing to live . . . I always had reasons: We needed snow tires; the boys needed pajamas; the Christmas Wishbook had arrived from Sears."
Besides, she added, it was easy to rationalize the borrowing. "I figured I could always deduct the finance charges from my income tax."
In the end, though, the borrowing "got us in a real hole." Finally, she and her husband -- who did not know the extent of the debt until last summer -- visited a credit counselor. They have now put themselves on an excruciatingly tight budget to permit them to repay all of their debts within five years. As for the credit cards that got them into trouble, "We had a burning ceremony. . . . Now I pay cash for everything."
Chris' tale of woe may be extreme, but her basic problem with credit is by no means unique. With a growing number of lenders eagerly dishing out the credit, thousands of Americans are acquiring debt almost as naturally as they turn on a television set.
From traditional automobile loans to credit cards to new lines of credit that are linked to the value of their homes, consumers have been taking on debt at a pace unmatched since the end of the Korean war, when consumers splurged to satisfy the unmet needs of the war years.
Today, according to figures from the Federal Reserve System, Americans have tallied up a total of $664.2 billion of debt for loans -- car, property improvement, home equity, mobile home, recreational vehicles and personal loans. That sum is more than triple the $223.2 billion rung up in consumer loans 10 years ago.
For home mortgages, there is another $1.4 trillion of credit outstanding -- also nearly three times the $483 billion outstanding 10 years ago.
Consumer debt has grown faster than consumer income and faster than the economy itself. While most economists had expected consumer borrowing to slow down last year as a result, it continued to rise sharply, growing at an annual rate of 21 percent in the first half of 1985 and 18.8 percent in the third quarter. Over the last three decades, the normal annual growth rate has been about 13 percent.
The greatest growth in credit has come in the use of bank cards as financial institutions aggressively pursue consumers by mailing unsolicited bank cards across the country. Between Dec. 31, 1983, and Oct. 31, 1985, bank credit card debt rose from $44.2 billion to $73.7 billion -- a 67 percent increase in less than two years.
Even so, most economists do not believe that the current high level of consumer debt poses a threat to the economy as a whole, particularly when it is compared to all the different types of debt being incurred by various segments of the country.
"What consumers are doing on their balance sheet is considerably less than what the government is doing on its balance sheet or business is doing," noted Charlene Sullivan, associate director of Purdue University's Credit Research Center.
What's more, households appear in better shape to repay their debt than in the past. For even as they borrow, they are increasing their liquid assets -- checking and savings accounts, stocks, money market funds, bonds and other financial instruments that can be converted readily into cash -- according to Daniel Van Dyke, a vice president and senior economist for the Bank of America. Five years ago, installment debt accounted for 10.9 percent of consumer liquid assets. Today, that ratio is 9.9 percent. "Installment debt has grown fast, but assets have grown faster," Van Dyke said.
But by some of the measures economists use to determine whether consumers are in debt over their heads, households would appear to be in trouble. Consumer debt -- excluding mortgages -- is equivalent to 19.2 cents of every dollar of spendable income. That compares with 17.8 cents at the end of 1979 -- the peak of the previous recession.
Delinquency rates on credit payments also are rising, with 2.39 percent of all consumer installment loans (excluding bank card loans and mortgages) more than 30 days late as of Sept. 30, 1985, the last available figures. Although that level is below the record 2.91 percent delinquency rate posted 11 years ago, it is higher than the 2.1 percent recorded a year earlier.
Delinquencies on bank-card loans, however, are near their all-time high, with 2.88 percent of all the payments for such loans more than 30 days late at the end of September. Although that may sound like a small number, economists point out that it is up sharply from the 2.1 percent delinquency rate recorded for a year earlier.
Mortgage-loan delinquencies, meanwhile, have declined somewhat in the first three quarters of 1985 from the first of the year, when they were at a record high -- 6.19 percent -- for the last five years. At the end of September, those rates had dropped to 5.64 percent.
Credit counselors don't need to see these figures to know that a growing number of families are overextended. They know simply by the sharp increase in the number of clients that are turning to them for help. "We're definitely seeing a marked increase in the number of clients," said Joanne Kerstetter, executive director of the Consumer Credit Counseling and Educational Service of Greater Washington.
"Our waiting list this year is about four weeks," she said. "It used to be only a week and a half a year ago. For the first six months of 1985, the number of families we saw increased by 25 percent."
What's more, their debts were far higher than previous clients'. "The debt load, excluding secured debt such as loans for homes or cars, averaged $7,000 this year; last year it was less than $5,000," Kerstetter calculated. Contributing sharply to the increased debt load was the average number of credit cards each family carried -- from four to five last year to seven to nine this year, Kerstetter said.
This rapid expansion of consumer debt is causing increasing concern among many economists, who fear that the overextended consumer soon will have to put a brake on spending.
That, in turn, could lead to a sharp slowdown in the economy, which for the past year has been spurred on by consumer spending.
"Since the fourth quarter of 1982, consumer spending has been a major driving force in U.S. economic growth," said Allen Sinai of Shearson Lehman Brothers. "Can the consumer keep it up? Likely not, with the odds favoring a substantial slowdown, but no collapse, in consumer spending during the fourth quarter of 1985 and in 1986."
With every other sector of the economy weak, that could spell trouble, said Sandra Shaber, vice president of consumer economics for Chase Econometrics.
But Shaber and many other economists pointed out that the sharp growth in con-sumer credit numbers may be misleading because the numbers include credit-card charges that are made primarily as a convenience rather than for a loan.
"Consumer credit is growing rapidly, but not at a crisis rate," said Leo Mullin, executive vice president of the First National Bank of Chicago, one of the nation's biggest issuers of credit cards, with about $3.2 billion outstanding on the Visa and MasterCards it issues.
"When people say that credit is higher than ever, it's true, but it's not quite as scary as it sounds because we pay for things differently than we used to," said Fabien Linden, executive director of the Consumer Research Center at the Conference Board.
"Not too long ago, you withdrew money from the bank and paid cash. Today, we hand over the credit card and pay at the end of the month. That's created a short-term float" that has sharply increased the amount of outstanding consumer credit, Linden said.
According to the Federal Reserve Board, that convenience factor accounts for 30 to 40 percent of the sharp increase in credit-card debt. If those transactions were subtracted from the overall consumer-debt numbers, then the ratio of debt to spendable income would decline sharply from 19.2 percent to about 15 percent, some bank economists calculate -- far below the last previous high of 17.8 percent in 1979.
The way consumers are financing their cars also has added to the overall consumer debt. "As the price of cars got higher, in order to make them affordable, car dealers and banks extended the maturity of the contract from 36 months to 48 to 60 months," noted Sullivan. "That means much smaller monthly payments -- and more credit outstanding."
Another factor behind the sharp increase in consumer credit is the country's demographic makeup. "A huge proportion of the population is in the very part of the life cycle where they have to buy cars, appliances and houses," Shaber noted.
And, said a Fed official, "There is a growing recognition that taking on debt for major goods is a reasonable way to acquire goods." That philosophy is a relatively recent one; with the exception of cars, banks did not extend credit to consumers until after World War II.
Even though consumer credit has reached a record high in relationship to personal income, many economists predict it will continue to grow at rapid rates -- to the point that some think it could amount to 25 percent of disposable income by 1990 -- up from the current 19.2 percent level.
One reason: the eagerness of lenders to offer credit cards and create new types of loans to encourage consumers to borrow.
"Lenders are still innovating with our financial sytem to make credit more available," said Charles Lieberman of Shearson Lehman. Among the newest offerings is the home-equity loan in which homeowners can obtain new lines of credit at favorable interest rates, based on the equity of their homes.
For relatively-well-off homeowners with large amounts of equity in their homes, these lines of credit are replacing not only first mortgage refinancings but traditional second mortgages as well.
In a home-equity line of credit -- as in a second mortgage -- the lender has a lien behind the first mortgage holder. But the borrower has greater flexibility. Once a line of credit is established, he or she can borrow as much or as little as wanted and repay it much like a bank credit-card loan, paying as much or as little (beyond a minimum premium) any one month.
But unlike bank credit cards, the rates are far more favorable, at least for now, with most institutions charging a rate based upon their prime rate -- the interest their best corporate customers can get for a short-term loan.
Washington's American Security Bank began to charge 11 percent on Jan. 1 -- 1 1/2 percentage points above its current 9 1/2 percent prime rate -- according to William Couper, the bank's senior vice president in charge of retail operations. By contrast, credit-card loans commonly carry interest rates of about 18.5 percent.
The home-equity lines of credit did not exist 10 years ago. Today, they account for nearly $35 billion in consumer borrowing, according to David A. Olson, director of marketing research and education at the Federal Home Loan Mortgage Corp.
Unlike credit-card borrowers -- who may be young or have needs that far exceed their incomes and can get credit cards from a number of issuers -- the home-equity borrowers are less likely to get into trouble, Olson said. "Most of these borrowers are high-income people and most are over 40."