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| Monday, July 30, 2007 |
| Average American's Credit Card Debt is $9,000? What a lie! |
MSN.com Liz Pulliam Weston's article: The big lie about credit card debt blames the illogical math of CardWeb.com for originating the false statement that "the average American household has over $9,300 in credit card debt". The majority of U.S. households have no credit card debt, according to the Federal Reserve's latest Survey of Consumer Finances. About a quarter have no credit cards, and an additional 30% or so pay off their balances every month.
Of the households that do owe money on credit cards, the median balance was $2,200 -- meaning half owe more, half less.
Only 8.3% of households owe $9,000 or more on their cards. She argues that the false inflated credit card debt figure hurts in a number of ways. It gives false comfort or sense of normalacy for that 8% which do have extremely high credit card debt levels. Instead of seeing themselves in a debt crisis they hear the false averages and assume the debt is not so bad. It also gives a general false impression that American's are not responsible with their debt - we are all on some extended spending spree we can't afford.
I admit I have heard the larger credit card debt numbers and felt fairly smug that I am not "one of them" with the large debt. Now instead of feeling smug myself and worried about the rest of American credit card users, I can take comfort that most of us do seem to be keeping the debt in check (or paid off completely). |
| posted by Boston Gal @ 9:00 AM *
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| 9 Comments: |
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Up until last month, I was in that 8% above $9000 balance. I'm down a little below $8000 now, and I'm pounding away at it each month. About a year ago, I had $20,000 in credit card debt.
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I'm in the 25% with no credit card debt.
I am always leery about cc debt. Who knows what is the accurate figures. No one truly knows.
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I just saw an awesome documentary about credit cards and debt, called Maxed Out. They reported that for every 1 dollar of principle that was owed, another $2 of fees and interest was tacked on. That's mind boggling. Anyway, it was a well done film.
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I admit, I used to be in the 8% - very soon I'll be in that 25% without it.
For some reason though I think that the median might be a little bit higher or maybe those top 1% with debt - in 5 digit range - must be pushing the average sky high...
I still like the movie Maxed Out though.
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My friend and I were talking about this earlier and she stated that you should carry a balance on the credit cards to help raise your credit score. I've never heard of this before.
Would some tell me if this is true or not? She sees no point in paying the balance in full every month but I disagree.
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Bronx Chica..wow Maxed out was a movie? I seen that as a show on the style network and was hosted by 2 females. They helped anyone with financial problems. I miss that show :(
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Anonymous,
Tell your friend that using your credit card every month helps your credit score (actively used credit) but carrying a balance does not. Don't fall for the myth that paying interest and enhancing the profits of credit card companies helps your credit score.
So use your credit cards monthly - but always - ALWAYS - pay them off in full. The only other little credit score "tricks" to know about credit cards are:
- credit cards with long histories are more valuable to your score than newly opened cards. So if you opened a card 5 years ago and a second card 1 year ago and are planning on applying for financing in the next year or two (a home mortgage perhaps?) don't close the 5 year old credit card account.
- Debt to available credit ratio impacts your score. Since scores are based on a "snap shot in time" even if you pay off your credit cards every month you can't control if the credit score will be calculated when your balances reflect recent purchases or right after you have paid off the most recent bill. So, if you are one of those folks who tries to avoid temptation by having a very low limit credit card (say $500 limit) and you regularly charge $400 - $450 on the card (and pay it off each month) you are hurting your score. You would be better off having that card limit raised from $500 to $1,000 or $2,000 and still just charging $400 - $450 monthly.
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Proud to be in the 30% of households that pay the balance in full each month.
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The numbers can be manipulated anyway you like. They are simply numbers.
I find that the people struggling with this issue are so deep in debt and so vulnerable it's almost tragic.
For centuries and in recent decades (pre-1990's) merchants and lenders personally knew of the lifestyle and creditworthiness of the person the funds were being loaned to.
These lenders would have a dutch-uncle talk with folks who might be getting themselves in too deep.
Today - the plastic allows us to have an unlimited supply of money. We are left to our own demise. Of course the lenders send more credit applications. They assume everything is going along fine - they are paying the minimums.
This suggests - to the vulnerable - that these banks wouldn't be sending me another credit application if they didn't think I couldn't handle it -- would they?
And the downward spiral starts.
Lenny Tumbarello
author of
No Balance Due:
Tired of Being In Debt Up to You're Eyeballs?
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Up until last month, I was in that 8% above $9000 balance. I'm down a little below $8000 now, and I'm pounding away at it each month. About a year ago, I had $20,000 in credit card debt.