The Hype About Credit Card Debt
CreditCards.com recently released a report saying that the average American household held $9,300 in credit card debt in 2004. This is a big number that would cause great pain for most families if it were anywhere near the real number.
There already have been a few comments arguing that this number is thrown off by a few families having huge amounts of debt (see MSN financial Columnist Liz Pulliam Wesston and posts on Credit Slips and The Consumerists. But this is not the main reason that the $9,300 is a bad number.
The $9,300 of debt is very different from the figures derived from the 2004 Survey of Consumer Finance (SCF) which show that:
* 54% of households had no credit card debt after paying off their monthly bill; (25 percent of this group had no credit cards at all);
* The median debt of those with debt was $2,200 while the mean debt was just over $5,000;
* Lower income people had low levels of debt than higher income people; and
* the mean debt of all households was below $2,500 because of the absence of debt of over half of all households.
There is a good explanation of why these two numbers differ even though they are both derived from information from the Federal Reserve Board.
First, the normal definition of credit card debt is the amount of debt held after paying off one's monthly bills. The $9,300 figure used by CreditCards.com is based on the Federal Reserve's tabulations from banks on daily outstanding sums; this figure is not the same as the amount of debt remaining after the monthly payments. Second, while corporate credit cards are mostly not included in the debt total compiled by the Fed, the credit card debts of the self-employed and small businesses are often included.
Do these two factors explain the enormous gap between the two data sources? Probably, but we don't have a definitive answer because there are no published studies on the issue. However, in private communication with the lead researcher in charge of the SCF, I discovered that a researcher had indeed addressed this question using a large, anonymous sample of bank credit card receipts. Apparently the researcher found that the SCF estimate held up once the figures were adjusted to account for the two factors listed above. Unfortunately, this person left the Fed before the paper went through the review process and was never published.
Finally, a Demos survey on credit card of low to moderate income families has been widely reported to find that the average household debt was over $8,000 for this group. The problem with these data is that the survey was limited to those who had over three months of outstanding credit card balances. While this can tell us a lot about people who are having credit card problems, it is not representative of the population as a whole.
The bottom line is that there is a relatively small fraction of the population that has high credit card balances that severely affect their finances. The $9,300 average household credit card debt figure is an eye-popping number that exaggerates the problem.
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If you cut the damn thing in half, and get yourself a debit card instead, and gut it out until you're only spending your own money, then you're not paying anyone interest anymore, and you only pay for your purchases ONCE, and some former high-finance people have to find honest day jobs. Sounds like a win-win to me! LOL
It isn't as simple as cutting up the cards. If you are late with payments, then your insurance companies can charge you more because you have bad credit.
That was 2004, by now most have added to their cards. With inflation, the credit card is a necessary source of income because many are not getting paid enough to keep up.
If automobile debt is included in that figure, then it probably is right.
Most people don't use their credit cards to live extravagantly, they use them to stay afloat. Some charge groceries so they can pay their insurance on time.
It doesn't take much to run up a credit card.
Take a hospitalization in 2006 and then another in 2007. Copays are too high in order to keep us from wasting the health dollar, but it really just hurts most, because Doctors don't operate on well people.
I have been on both sides of the aisle. If you don't make enough money no matter how cheaply you live then you have to charge, sometimes. On the other hand if you earn a good salary, you can afford to pay cash.
It's not just the amount of principal, it's the monthly finance charges!
The "discrepancy" is probably because most lower or middle income households have refied the credit card debt into a home equity loan.
"Second, while corporate credit cards are mostly not included in the debt total compiled by the Fed, the credit card debts of the self-employed and small businesses are often included. "
Excluding the business related debt for small business owners and sself-employed creates a false picture. For the small business owner/self
There's a good antidote to plastic fantastic:
A good sharp pair of scissors. Use frequently when recieving card offer correspondence from
anyone. I used to have about 5-6 cards, and a couple store cards. Snip, snip, and payment plan, all in the rear-view, now. Soup IS good food, tighten your belt for a year and take care of it...
YOU'LL TIGHTEN YOUR BELT and PAY YOUR BILLS.
A republican will max out the credit cards and them file for bankruptize after he has a couple of new zero balance credit cards.
He will walk away with $200,000.0
ONLY POOR PEOPLE PAY THEIR BILLS for the most part.
Huh? you must be kidding to imagine that most families pay off their credit cards, or that the debt is two thousand dollars or something crazy like that. it reminds me of the bullshit employment figures, and how low unemployment was, when everyone we knew, our friends and neighbors, their relatives and their relatives friends and neighbors or anyone we spoke to in the ladies room and everyone they knew were out of work, or had their full time job turned into twenty hour part time no benefits slave labor. even while corporations laid off hundreds of thousands of workers, we still were reading and listening to the same crap.
Americans are drowning in debt and swamped with bills they can't pay, including of course, the home equity, or suckers loans.
the phony statistics are sick shit and we have to stop listening to any of it, just as we have to ignore the iraq war is going well... because all this bullshit comes from the Bizarro world of george bush & co.
forget the statistics. In olden times they were manipulated to tell any story, now they are just made-up lies.
Bush has created more problems with the student loans now our children will not be able to afford college so the BUSINESSES CAN IMPORT COLLEGE GRADS WHO WORK FOR LESS.
SO even if our children get thru college they will be paid less and be in debt for years to pay off student loans.
WHAT A DEAL MR. PRESIDENT!
Just finished the first year of student loan repayment, 24 to go! I'll only be 51 when they're paid off, woohoo.
Thank you Judy for your truth. So, so sad
Ufortunately, I have to agree with you Judy. I lost my job directly due to it being outsorced overseas. By the time I found a new job, which pays 20% less, Iwas behind the credit card 8 ball. Now my card is topped out, mycredit rating is falling, and I really don't know what to do. Did I mention my family has had no health bebfits for the past 18 months? Poor me, there are many who have less than I. I am blessed with a wonderful wife and children.
Mr. Rose is absolutely correct. When Barack Obama wouldn't vote in favor of capping credit card interest rates at 30%, the public schoolers on the web went crazy. Barack had enough Ivy League wits to reject the false arguments being presented by the public schoolers. This blog proves what many have known all along: Barack Obama was right! Rubinomics works! We don't need to reregulate, we need to DEREGULATE. Let businesses do what they do best.
Barack and Hillary all the way!
Deregualtion has gotten us here.
When your up to your neck it's time to stop digging.
Please, please deregulate
ER, please RE regulate
I cannot speak to whether the amount in question is a hyped number, but I do agree with www.affil.
Blaming the lenders is tantamount to blaming a gas station attendant for causing lung cancer to those who buy his legal products. The REAL problem is capitalism and the typical Americans' selfish, impish need to "keep up with the Jones" by spending beyond one's means. PERIOD
Yeah so when the President ARTFICALLY LOWERS THE INTEREST RATES BY PRESSURING GREENSPAN then TOUTS the American ownership line and that every American should be part of it the poor people are FOOLED BY THE PRESIDENT into beliving he was helping them buy a home.
They see the homuse payments the same or lower than their current rent. They take a chance. Then Greenspan retires and says "These artifically low interest rates can not continue long with doing GRAVE damage to the U.S. Economy".
Interest rates rise and the people lose more than thier investment also they will bet the TAX BILL for the BAIL OUT of the very lenders who gave them the home loans plus interest on the bail out.
The lenders are criminials as are Wall St. Greeds (knowingly sold risky investments to inverstors incl those in other countries jeopardizing their economy as well).
The materialism is beyond sick so I agree somewhat there but only somewhat. The carrot has been dangled 24-7 by TV programs and advertising. Lives of the rich and famous, how to become a millionaire, MUST buy designer items,a new car every one or two years - needed!, weddings - a whole special area of greed, the "greed is good" mentality, the despicable snobbery of some homeowners toward renters & all other manipulations of government/business or business/government (now one and the same). When a citizen is identified as a consumerist, the stage is set. Greed must be identified by the moral leaders (who really are moral leaders) as the capital SIN which it is. But this is a long shot... so long as we are what we have determines success as a modern human being people will be vulnerable to Wall St, their first cousins -predatory lenders & all their ilk. I did not grow up in the bible belt but heard plenty about the powers of the devil (& the deeds too). These devils are legion, cunning, without conscience & powerful - aka sociopath.
At the other end of the economic data are very real numbers which portray middle and lower incomes as stagnating, and even retrenching badly, due to inflation in the cost of food and energy.
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It was no coincidence that in the runup of National Debt which has accompanied Iraq, the Republicans promoted, and with the help of Democrats including Biden of Delaware, passed a new bankruptcy act which safely protected Credit Card Issuers such as MBNA, ... and arguably enhanced their acquisition value in their sale to BOA. At the same time it safeguarded BOA's investment, ... a quid pro quo worth Billions in the long run!
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And so there are no longer usury laws, ... long ago abandoned, nor are there realistic protections for consumers caught in a cycle of borrowing to meet needs, whether basic, or driven by the incessant marketing which pervades our nation's very being. Credit counseling, rent-to-own, credit repair through purchase, ... There is no end to the scams which draw every last cent from the pocket of those consumers who do not have the will to walk away from the "American Dream" of endless materialism.
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This is a "square corner" here, Steve, ... those of us in the middle of America square here with each other by telling the truth. I am sorry to say your article discounts a real problem without stating its root cause. Not lies, ... just not compete, in my estimation.
Personally I am totally insulted by the statements a few years ago the Citi Bank could not be allowed to fail because it would ruin the U.S. Ecomony.
I am insulted that any company is allowed to issue so much debt that their failure could in anyway affect the U.S. Ecomony. How are they connected to the ecomony? Are they a Federal Reserve Bank?
No business should ever be allowed to worms it's way in that position that it could hurt the economy if it fails!
I hate to say this but the bank the Bush clan started in the early 1900's has become Citi Bank. I would bet they are a learge part of the Federal Reserve Bank. I read this last night. I don't know if it's true or not but that's what I read.
Trust me, you don't want to know who owns the biggest chunk of Exxon Oil. It would explain why we had our biggest ally.
What a tangled web they have surely weaved.
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