Beyond Bankruptcy Reform

November 12, 2012 | | Boston Review |

Mike Konczal gets a lot right in his analysis of why our economy continues to suffer sluggish growth. The expansion of consumer debt has left households over-leveraged, pressured to pay down loans. As he explains, the historic and swift build-up of consumer debt must be understood in the context of financial deregulation and trends in overall household incomes and costs. Considering these two factors helps us identify the policy reforms that might relieve households of debilitating debt and protect them against further indebtedness in the future.

In 2008 and 2012, Demos commissioned national surveys of low- and middle-income households to examine the nature and scope of household indebtedness, with a particular focus on credit card debt. Both surveys reported similar results. About 40 percent of households reported going into credit card debt to pay for basic necessities, defined as housing payments or rent, utilities, insurance, and groceries. Job loss, car repairs, home repairs, and out-of-pocket medical expenses were also among the most commonly cited sources of credit card debt. Forty-seven percent of indebted households cited medical expenses, averaging among them slightly more than $1,600 in credit card debt due to health care costs.