Do people really carry this much debt on their credit cards? (1 Viewer)

[DaveF]

I've seen similar numbers reported for the past 10+ years. It amazes and frightens me, too. But I've always been suspicious of these numbers, because "average" is not always a good indicator.

Consider: Between me and Bill Gates, we're worth an average of about $25B.

A simple average of all credit card holders in America could be skewed by a relatively small number of people with very large balances. It could be skewed by the very wealthy who don't care about a few $10k on their credit card.

It might, as suggested, be skewed by normal purchases that are paid off every month. Any given month, we've got a thousand or two on the card that's paid on time.


And yet... I believe that the basic story is true: middle class America carries significant debt, beyond the house mortgage and car payment.

 

[Eric_L]

$600 is a reasonable amount for wisdom teeth, is below most deductibles, unlikely to bankrupt anyone, and not even 10% of the average credit card balance.

You want to have an eye opening experience? Go to bankruptcy court. I've been there. Watched kids with $100 haircuts, $400 cell phones and designer clothing filing for bankruptcy. I once dated a girl who was an office temp. One assignment was working for a bankruptcy lawyer as a receptionist. She shared the story of a guy who came to file for bankruptcy and, when she told him of the $100 filing fee, he asked, "Do you accept Visa?"

 

[Marianne]

Depends on your employer. Small companies, like the one I used to work for, will usually pay a portion of the health insurance premium. That leaves the remainder to be deducted from your paycheck. The company I worked for only kicked in $200 per month to each employee's health insurance. No matter how much premiums went up each year they only paid $200. Many employees were paying several hundred dollars per month as a payroll deduction.

Then, of course, because it was a small company the coverage wasn't great so you ended up with large deductibles and co-pays.

 

[JonZ]

I only have 2 cards and owe about $800 between them.


I just stick to my debit card pretty much.

 

[Jeff_CusBlues]

Agreed, maybe the median balance would be more meaningful in this case.

 

[John Dirk]

I'm not seeing where we disagree, but I didn't mean to speak in absolutes. Young people do get a bad deal, especially with auto insurance, but I think most people who find themselves in CC debt get there by being greedy and/or irresponsible. I know that's how I did it back in the day. But I never took on more than I could easily handle, and as I got older I started making better decisions and eliminated all debt. Nowadays if I can't pay cash [save a car perhaps] then I can't afford it.

John

 

[gene c]

And all I was suggesting is that it's a number of things that get people into debt. Irresponsibility, poor decision making (that 7 year car loan), a few un-foreseen events (car repairs, a leaky roof, dare I say it...termites!), a need to have things right now and an insufficient rain day fund are all reasons for the hight debt. Not excuses, but reasons.

As for my two examples, I was just showing Bobby that having health and auto insurance usually doesn't eliminate all financial obligations. There can still be large bills to pay.

 

[DaveF]

An article from ~2001 comments that this reporting is plain wrong, and the suggestions I and others have made are correct. Of course, I've not verified this story...


It's a simple average, which is likely skewed by the wealthy.

It's outstanding debt on credit cards, such as regular purchases that are paid on time. Again, this would be radically skewed by the hyper-wealthy.

The median value is about $2000.

The truth about credit card debt - MSN Money

This may have changed during the housing boom, and now bust. But the $8000 figure reported since 2001 may be bunk.

 

[John Dirk]

Yup. Misread your earlier post. Thought it said "I don't agree," but it said "I don't disagree." My bad...

John

 

[Bryan X]

That makes a lot of sense Dave.

I'm sure with the news it's also a case of those drowning in credit card debt being more interesting news-wise. Who wants to read a story about a familiy who pays off their credit card every month.

 

[Chris Lockwood]

I laugh at the whole concept of "predatory lending". That's mainly because it makes it sound like the borrower is an innocent victim.

Every time I've gotten a loan or a credit card, it was because I applied for one, not because some "predator" forced one on me.

It makes no sense as a lender to deliberately lend to people who can't make the payments. Mortgage companies do NOT want to foreclose- they would much rather you make the payments.

Unless the borrower is underage or mentally incompetent or the like, they have as much responsibility as anyone else.

When credit gets tighter and lenders start doing things like requiring 20% down on a mortgage, some people who now complain about "predatory lending" will be whining about that.

 

[gene c]

If so then that really makes me look bad. I was close to $8k in consumer debt 20 years ago! But I bet many people still over extend themselves, especially when you add car loans (often times more than one) and 2nd and 3rd mortgages.

 

[Greg_R]

You followed this behavior pattern because you had some form of background education (either business or common sense inherited from family or friends). Many people out there (including college students) have never been taught this. I don't want to go on a diatribe about the American educational system but real life skills are no longer taught to students.

 

[DaveF]

Yes, but everyone else doesn't care, since they already got their money. Mortgage brokers were incentivised to sell mortgages. You got your house with their mortgage. They sold the mortgage to an aggregator. The broker got his money and no longer cares if you make your payments. The aggregator collects many mortgages and sells them to a securities bank. The aggregator got his money and doesn't care if you make your payments. The securities bank slices thousands of mortgages into pieces, and mixes them up into CDOs, and sells them to investors. The securities bank has got his money and no longer cares if you make your payments. Many different investors now own thousands of pieces of mortgages around the world. They care if you make your payments because that's their payback. But they own so many pieces of difference mortgages, they simply can't help you refinance. So you lose the house, because no one cares or is able to untangle your mortgage knot.

But now, since people are defaulting, banks and mortgage companies can't sell new mortgages, so their income stream has dried up and they're facing bankruptcy. And no one will lend to them to stay afloat. And since they don't own the mortgages in trouble -- that's the global investors issue -- they can't help you with sensible refinancing. So now they're panicked about people not making payments. And it seems no one gave it a thought until late last year.

And that is the credit crisis crudely (and imperfectly) explained.

For better explanations, listen here or laugh here.

 

[Carl Miller]

Conceptually, you're completely correct. An adult is an adult and as long as he or she is competent, he's ultimately responsible for his actions.

However, credit card companies know full well that not every adult is able to spend within their means...Take my son, who is an 18 year old high school senior. He was offered a credit card with a $20,000 limit. He's going to college in two months, won't be working and yet, they're offering him $20,000 to borrow on a credit card?

The CC issuer is hoping my son won't be mature enough to spend within his means because not every fresh out of high school 18 year old is...that's what makes them predatory---It's that they're sending out these credit card offers to hundreds of thousands of 18 year olds just like him, hoping that some of them will spend their way into debt and carry those balances for the next 10 years. That's what makes them predatory, and that's how they make money.

 

[Henry Gale]

Yeah, that's what I wanted to do when I was 17.
My sum ended up descending though.

 

[DaveF]

So you did have a descent sum of money?

 

[Henry Gale]

 

[John Dirk]

Very well articulated Dave. Thanks for breaking it down. As you explained, no-one cares until it affects them, but the big banks and mortgage companies then go whining to the government and want our tax dollars to bail them out, or they go and sell their souls to foriegn investors. Either way, it's bad for individuals and bad for America.

John

 

[Philip Hamm]

The only possible reason you could laugh is that you do not understand the concept.