New York, NY – The national public policy organization Demos has released a new report that examines the underlying reasons why some Americans have credit card debt and finds further evidence that, contrary to popular belief, indebted households are not the product of less responsible spending habits.
The Debt Disparity: What Drives Credit Card Debt in America builds on a national survey of working age low- and middle-income households, breaking them down into two groups that are statistically indistinguishable in terms of income, racial and ethnic background, age, marital status and rate of homeownership. The sole difference between the groups is that one carries credit card debt, while the other group has credit cards but no debt.
Credit cards can become a high-interest ‘plastic safety net’ that enables households to make ends meet.
The report shows that households accrued credit card debt due to several factors, including:
Lack of insurance coverage: Households in which a member has gone without health insurance at some point in the last three years are 20 percent more likely to be carrying credit card debt.
Children: households that include children under 18 years of age are 15 percent more likely to be carrying credit card debt than childless households.
Unemployment: Households where someone has been unemployed for at least two months in the last three years are 14 percent more likely to be carrying credit card debt than households that were not hit by joblessness.
“As incomes for many Americans fail to keep up with costs during this period of slow economic recovery, credit cards can become a high-interest ‘plastic safety net’ that enables households to make ends meet,” said Amy Traub, Senior Policy Analyst and report author.
The report offers policy recommendations on strengthening the public safety net, as well as medical debt protection, increased financial regulation and enforcement of accurate credit reporting, as well as banning credit checks as hiring criteria.
“What we’ve seen is that, by and large, households don’t have credit card debt because they’re irresponsible: more commonly they have debt because they’ve experienced unemployment or had to cope with medical costs without insurance. Americans shouldn’t have to rely on credit cards to supplement low pay and replace social support.”
Alex Amend, Demos