Seth was in his 20s on spring break in Florida when he fell into a debt trap. Alongside the cocktails on the beach and wet T-shirt contests were credit card companies, enticing young spenders with free food and apparel in exchange for signing up for a credit card.
"Credit cards started coming in the mail and I started using them," recalls Seth, who requested his last name be witheld for privacy reasons. "When I hit the limits I got credit increases very easily." When his credit maxed out on one card, he simply transferred his balance onto a new card with zero percent interest, allowing his debt to snowball until he owed $40,000.
With limited income, a dismal credit score and his spending spiraling out of control, Seth fell into financial distress, as did many other Americans swept up in the credit boom at the time.
Today, though he's gotten better at managing his money, Seth still can't get a credit card. And he's not alone. Despite a slowly improving job market, financial distress still plagues American families, according to the results of the latest Consumer Distress Index, released Wednesday. The index has shown alarming signs of Americans in crisis for 13 consecutive quarters, or 39 months.
Measured by non-profit credit counseling agency CredAbility, the index takes into account five indicators of financial well-being including housing prices, employment rates, credit, budgeting and net worth. All indicators are evaluated on a 100-point scale and a score that falls under 70 is considered failing.
Mark Cole, chief operating officer of CredAbility, said that even though the most recent index score rose to 67.6 from last quarter's score of 66.7, the results are in keeping with a trend in which positive results on one or two indicators are offset by two negative scores. In this latest index, falling net worth and shrinking budgets are what kept the average American household in distress.
Seth has improved his financial situation over the last five years. He's on stable footing when it comes to employment (he started his own business and is now self-employed) and has improved his credit.
That said, he has not since been approved for traditional credit cards. A stable retirement fund is a long way away.
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CredAbility's Cole said he is particularly concerned about the latter issue, citing that a generation of Americans is heading into retirement without defined pension plans.
"The net worth number is the ticking time bomb," Cole said. "People have not saved nearly enough money for their retirement," he said, adding that this indicator has not scored well in the 31 years that CredAbility has been looking at this figure.
Budget and spending is another category Cole worries about. Like Seth, many American families are spending less, which puts the national recovery at risk.
"I don't find many people who feel safe and good about their jobs," Cole said. When stagnant wages and job insecurity meet rising gas and food prices, he added, discretionary spending is eaten up.
Cole pointed out that the states that contribute the most to the nation's economy -- California, Texas, Florida, Illinois -- are the ones seeing failing Consumer Distress Index scores.
"We've got to get growth in those states," he said.
Georgia, where Seth lives, is the 11th largest state in terms of gross domestic product. The state's unemployment rate is 9.7 percent.
While Seth was able to pull himself out of distress, those around him have not found such success.
"With my circle of friends I would say over a third of them are at a point where I was five years ago," he said. "More are having problems than are not."
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