Credit Card Use in America - Families buy Essentials With Costly Credit
It is often believed that those who carry heavy credit burdens are those who buy extravagant goods, and live outside their means. Those of us in the industry know this stereotype is untrue and that many consumers who file for chapter 7 use their high-interest credit cards exclusively for necessary purchases. A new report released yesterday confirms this, just days before a new bankruptcy law goes into effect which will make it harder and more costly for these consumers to file for bankruptcy should they need to file.
Yesterday Demos and the Center for Responsible Lending released findings from a new national survey of household debt in a report called "The Plastic Safety Net: The Reality of Household Debt in America." These survey results show that low- and middle-income families are acquiring credit card debt to pay for essentials at the same time business practices in the credit card industry are making this debt more costly and harder to manage.
This report comes just five days before the new bankruptcy bill becomes effective and undermines consumers' ability to recover from heavy debt. Research shows that credit card debt in America has almost tripled since 1989 and now stands at $800 billion. http://www.responsiblelending.org/promos/101205-demos.cfm
The new bankruptcy bill was passed, in part, based on a stereotype that credit card debt results from extravagant and irresponsible use. The Demos/CRL survey contradicts that widespread belief, showing that lower-income families, by and large, are using credit cards judiciously and trying to pay them down responsibly. Among the findings in the survey:
-- Seven out of 10 low- and middle-income households reported using their credit cards as a safety net -- relying on credit to pay for car repairs, basic living expenses, medical expenses or house repairs.
-- Households that reported a recent job loss or unemployment, and those without health insurance, were almost twice as likely to use credit cards for basic living expenses.
-- Households that used home equity to pay off credit card debt did not gain net benefits. Respondents who reported paying off some credit card debt by refinancing their mortgages reduced their home equity, on average, by $12,000 while retaining average credit card debt of $14,000 -- 18% more debt than homeowners in the survey who had refinanced without paying down credit card debt.
-- $8,650 is the average credit card debt of a low- and middle-income indebted household in America.
"The Plastic Safety Net" details current business practices in the credit card industry that make it difficult for lower-income families to manage their finances and stay out of debt, including issuers' ability to change the interest rate and other terms of credit any time and for any reason, and based on transactions unrelated to the account. The report includes recommendations for reforms that would promote economic security for families and establish fair business practices that would result in more equitable and less capricious credit terms.
For the full report and other related information, please visit our website at: http://www.responsiblelending.org/promos/101205-demos.cfm.
