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Borrowing to Make Ends Meet Executive Summary The economic security of American households has eroded in the last decade. Many low-to middle-income households have experienced a growing gap between their incomes and their day-to-day costs of living, resulting in decreased savings, rising levels of debt, and widespread economic instability. Since the year 2000, many households have tried to cope with this financial imbalance by relying on credit cards to cover basic expenses that earnings do not meet. Homeowners, ominously, have then relied on cashed-out home equity--$1.2 trillion over the last six years--largely to pay down those debts and to cover other costs of living. While credit cards have provided many households with an economic safety valve to deal with income shortfalls and emergency expenses, this debt may often aggravate financial distress rather than relieve it as mainstream credit card practices have become increasingly punitive and costly. This report provides a comprehensive analysis of credit card debt using the most recent data from the Federal Reserve Board's Survey of Consumer Finances. In addition to assessing the current status of credit card debt among households, we provide data on trends for this debt from 1989 to 2004. Key findings (all figures in 2004 dollars unless otherwise noted): Between 1989 and 2006, Americans' overall credit card debt grew by 315 percent from $211 billion to $876 billion (2006 dollars). From 2001 to 2006, homeowners cashed out $1.2 trillion in home equity, often in an effort to cope with mounting credit card debt and to cover basic living expenses (2006 dollars). Nearly six out of 10 households with credit cards revolved their balances in 2004. The average amount of credit card debt among those households reached an all-time high of $5,219, an increase of 89 percent from $2,768 in 1989. From 1989 to 2004, the percentage of cardholders incurring fees due to late payments of 60 days or more increased from 4.8 percent to 8.0 percent. In 2004, the average credit card-indebted family allocated 21 percent of its income to servicing monthly debt compared to the 13 percent dedicated to debt payments among all households. In 2004, 46 percent of very low-income (under $9,999) credit card-indebted households spent more than 40 percent of their income to pay off debt. From 1989 to 2004, credit card debt among very low-income households quadrupled from an average of $622 in 1989 to $2,750 in 2004. While white households carry more credit card debt, African Americans and Latinos have a higher percentage of credit card-indebted households. In 2004, of those with credit cards, 84 percent of African-American households and 79 percent of Latino households carried credit card debt compared with 54 percent of white households. Over 90 percent of African-American families earning between $10,000 and $24,999 had credit card debt. Since 1989, Americans in the age group of 65 and over have experienced the greatest increase in the amount of credit card debt carried. The average balance for this age group increased 194 percent from $1,669 in 1989 to $4,906 in 2004. |
