Borrowers Face Crunch As Rates Rise Buying Spree Leaves Many With A Mountain Of Debt

Seduced by tempting offers of low-interest credit cards and loans, and emboldened by a healthier economy, Americans have been racking up billions of dollars in new debt for months.

Now, with many rates on the rise and the economy slowing, the first signs that borrowers have overdone it are beginning to surface.

Delinquent payments on plastic are increasing for the first time in years, credit card researchers say.

Bank deadbeats are also increasing. Many banks say their write-offs of bad consumer debt - including auto loans, home equity loans and credit cards - increased late last year after falling for months.

Credit counselors, who make a business out of helping people manage their debts, say the number of their customers jumped in January - even more than it usually does after Christmas.

A consumer credit binge of the last few years is finally coming back to haunt us, and while economists don’t expect it to reach a crisis, they are anticipating more people will confront repayment problems.

According to the Federal Reserve Board, installment credit was up nearly 15 percent in December to $911.2 billion from $794.3 billion in December 1993.

A lot of that is credit card debt. Consumers have been inundated with come- ons from companies offering no-fee cards and artificially low interest rates for limited periods such as six months. Many people signed up, and used, multiple cards.

“It’s like someone dangling a carrot in front of you and saying `This is a great deal and who cared about later,”’ said Sheila Bereolos, a legal secretary in Texas. Bereolos sought counseling in October when payments on credit card debts, a mortgage and unexpected medical bills got out of countrol.

“It’s not unusual for us to see someone with 11 open lines of credit. It used to be eight was the top,” said John Erickson, president of the Phoenix office of Consumer Credit Counseling Service.

Consumer Credit offices are part of the National Foundation for Consumer Credit Inc., a nonprofit organization based in Silver Spring, Md., that provides free or low-cost advice.

The Federal Reserve Board has raised interest rates seven times in a year to hem in consumer spending and slow the economy to curb inflation. Statistics show the formula is working and people are borrowing less. Overall consumer credit rose 9.8 percent in December, the smallest increase in five months.

But there’s evidence that some people should have cut back sooner.

For the first time in three years, monthly delinquency rates on credit card payments went up in January and February, according to Ram Research Corp., a Frederick, Md. firm that tracks card trends.

The February rate - 3.9 percent of all credit card charges were past due - is still low when compared to the early 1990s, when delinquencies hit 6 percent.

Many banks said that in the fourth quarter, they wrote off more consumer debt, meaning they considered it unlikely to be repaid. One reason was a sharp rise in the number of people using credit cards and a resulting number of credit card delinquents, the banks said.

Among the big credit card issuers increasing write-offs were Chemical Banking Corp., Chase Manhattan Corp. and First Chicago Corp.

Meanwhile, more people are running to credit counselors because they can’t pay back their loans.

In San Francisco, for example, the number of people seeking help from the Consumer Credit Counseling Service rose 25 percent in January compared to last year, said Joanne Budde, president. In Phoenix, appointments were up 17 percent, while in Atlanta calls were up 26 percent.

Consumer Credit did no special advertising in January. People have just run up an enormous amount of debt, said Boas.