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Optimistic Stats Hide Deeper Debt Problems

Credit Card Guide

While that may sound like good news, it may be masking underlying problems, researchers have found in a new study.

Promising numbers

In its May 2012 Plastic Safety Net survey, research and advocacy company Demos surveyed 997 low- and middle-income American households that carried credit card debt for three months or more — and looked at how the recession and the Credit CARD Act of 2009 have affected American households.
First, the good news.
Average consumer credit card debt totaled $7,145, down from $9,887 in 2008, Demos found. That echoes the optimistic numbers from the New York Federal Reserve’s latest Household Debt and Credit report — which found that consumer debt fell 0.9 percent, mortgage balances dropped by 1 percent and balances on home equity lines of credit fell 2.4 percent in the final quarter of 2011.
Demos also found that the CARD Act seems to be working — for some. It’s doing what it’s intended to do, according to the study, which is to reduce fees and help people understand statements and pay down their balances faster. Fewer people made late payments, and those who did were a lot less likely to see their interest rate increase as a result.
The study also found over-the-limit fees had been virtually eliminated by the CARD Act and that the elimination of those fees really benefited certain minority groups — African-Americans and Latinos primarily.

The troubling truth

But those numbers don’t tell the whole story, say Demos researchers.
The company looked at how consumers are using their credit cards and found that in 2012, people continue to rely on their credit cards to pay for financial necessities, such as rent or mortgage bills, groceries, utilities or insurance because they don’t have enough in their checking or savings accounts.
Researchers had expected the numbers to come down from the previous survey, which was done in 2008 at the height of the recession, but that wasn’t the case, says Demos senior policy analyst Amy Traub.
“There had been so many reports about households deleveraging — borrowing less — and we did find less borrowing, but at the same time we found that about the same percentage — 40 percent — were using credit cards to pay for basic living expenses,” Traub says.
That suggests there’s more going on here than a temporary economic glitch, she says.