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Over the Limit

Americans accustomed to cheap and easy moneyand an economy geared to their free-spending waysface a harsh new reality as banks raise rates and lower ceilings on credit cards

Life got more expensive for the Fitzgerald family when their daughter was born last year. So John, a bartender, and his wife, Adela Uchida, an anchor at a local TV station, sometimes used credit cards to charge household expenses such as groceries or the taxes on their two-bedroom home in Lansing, Mich. That's not an option anymore, they say, because their bank hiked the rate on one card from 17% to 25%, while another cut their credit limit from $13,000 to $2,000. Now it's cash only for the couple, who worry about how they would deal with a financial emergency. "The economy here is not good," says Fitzgerald. "If something happened to me or my wife, we would never pay off these balances."

The credit crisis that began rumbling through the mortgage market last summer is now spilling over to the nation's other great expanse of borrowing: credit cards. Banks have extended $740 billion to Americans like the Fitzgeralds, a 15% jump over the past five years. With the economy weakening, delinquencies are rising, particularly in states battered by the housing bust.