Credit Cards and Debt

According to the US Census bureau in 2003, there were 164 million credit card holders in America. This number is projected to grow to 176 million by 2008.[Source:info.sen.ca.gov]. Credit cards are convenient and easier to carry around than cash and checkbooks. Some credit cards also come with purchase insurance benefits, reward points and other discounts. With so many benefits, credit cards seem to be the best thing in one’s wallet. However, research by the Congressional Budget Office, Federal Deposit Insurance Corporation, and independent economists gives a completely different picture about credit cards. Their research puts forth some eye opening statistics:

• Approximately 60% of cardholders carry credit card debt from month to month.
• Americans owe more in credit card debt than student loans.
• The average credit card debt for families is more than $10,000[Source:nacba.org].

According to the Federal Reserve, between 1989 and 2006, the overall credit card debt increased by 315 % from $211 billion to $876 billion [Source:demos.org]. According to researchers and consumer advocacy groups, delinquencies, the habit of paying only minimum balances, unfair or deceptive card practices and overspending with credit cards are some of the underlying reasons for such a rapid increase in credit card debt

Here’s how these factors affect debt:

• Credit card delinquencies: According to a report by Associated Press (AP), there has been a rapid increase in credit card delinquencies in recent years. The AP had surveyed 17 large creditors and credit card issuers and found that delinquencies of 30 days were higher by 26% from 2006, to a total of $17.3 billion. Payment delinquencies of 90 days or more were up 50%, and defaults reached $961 million [consumeraffairs.com]. Delinquency on credit card payment leads to creditors charging penalty interest rates and other fees to borrowers who make late payments. Some creditors may increase a customer's interest rate if they make late payments on any credit account. Therefore, a slip-up on one credit card account can result in higher interest rates on all other cards
• Payment of only minimum amount due: Making minimum payment due on a card only covers the interest and a small percentage of the principal amount. As a result, it may take years for borrowers to pay off the balance. For instance, making only minimum payments on $1,000 credit card with a 19.8% interest rate will take eight years to pay the debt and would cost a borrower $843 in finance charges
• "Unfair or deceptive" card practices: Many Americans are struggling to keep up with their payments due to unfair and deceptive lending practices. Retroactive interest charges, outrageous interest rate hikes, over-limit fees, fees for paying a bill and interest charges for one-time payment are some credit card lending abuses, leading to increased debt. To deal with the problem of unfair and deceptive lending, consumers may file complaints against credit card issuers with the Federal Reserve [Source:usatoday.com].
• Overspending: Dunn and Bradstreet conducted a research study where they compared the behavior of people who use credit cards and those who do not. The results that they found were quite startling. Statistically they found that on average, an individual would spend 12-18% more when making a purchase with a credit card as opposed to cash [Source:dnb.com]. According to card companies, McDonald's found that the average transaction rose from $4.50 to $7.00 when customers used a credit card instead of cash. [Source:ragsorriches.org]

We at Consumer Education Services Inc. (CESI) understand the reasons for your high credit card debt. Our professional and certified counselors help you control your debt through a debt management plan. Contact CESI for a personal and totally confidential counseling session with one of our trained credit counselors.