New Survey Report Reveals Truth Behind Credit Card Debt Explosion in the U.S.
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Center for Responsible LendingOctober 12, 2005Washington, D.C. --- American families are turning to credit cards to make ends meet in an increasingly volatile economy, according to The Plastic Safety Net: The Reality Behind Credit Card Debt in America, a new report released today by Demos and the Center for Responsible Lending.
Released just five days before the new bankruptcy law took effect and effectively shut the door on financial recovery for millions, The Plastic Safety Net presented new findings from a national survey on credit card debt among low- and middle-income households---those whose earnings fell between 50 percent and 120 percent of local median income.
The survey provides new information about why households are in credit card debt, how long they have carried their debt and the impact this debt has had on their economic security.
Research shows that credit card debt in America has almost tripled since 1989 and increased 31 percent since 2000. Americans now owe some $800 billion in credit card debt. In addition, owing largely to job instability and medical costs, bankruptcies rose from 616,000 in 1989 to over 1.8 million in 2004.
Existing data sources tracking debt, such as the Federal Reserve Board's triennial Survey of Consumer Finances, provide limited information and do not answer basic questions about how long households have been in debt and about the type of charges that lead to outstanding balances.
Prior to the survey findings presented in The Plastic Safety Net, there have been few studies that analyze how households are using credit cards and how they are managing their debt. "The results are clear: wages have stagnated while medical and housing costs have skyrocketed, and if confronted with a layoff or health emergency there are few, if any, personal or public safety nets adequate enough to help in a crisis.
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.
One out of three households reported using credit cards to cover basic living expenses on average four out of the last 12 months; households that reported a recent job loss or unemployment, and those without health insurance in the last three years, were almost twice as likely to use credit cards for basic living expenses.Further, these households still had average credit card debt over $14,000. As a result, they were carrying 18% more debt than homeowners who had refinanced a mortgage but not paid down credit card debt---even though their incomes were almost identical.Almost half missed or were late with a payment in the last year, with nearly a quarter of households reporting paying a late fee at least one or two times in the past year. In addition to charging late fees ranging from $30 and $39, most issuers also penalize cardholders for late payments by increasing the interest rate on the account two- or three-fold, often after only one late payment.
"Americans families are losing the fight against an economy and lending practices that are working against them," said Mark Pearce, President of the Center for Responsible Lending. "It's time for Washington to address this crisis head-on and create policy that protects, and promotes economic vitality for, all American households."
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