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New Report Details How American Families Rely on Credit Card Debt To Make Ends Meet

New York, NY — American families are using credit cards to bridge the gaps created by stagnant wages and higher costs of living and balances have grown dramatically since 1989, according to a new report published today by Demos. Borrowing to Make Ends Meet: the Rapid Growth of Credit Card Debt in America documents the disturbing trends in sky-rocketing credit card debt, and also provides detailed data based on age, race and income demographics. The report discusses how these trends relate to the housing market crisis and the increase in predatory and sub-prime lending in the financial services sector.

Since "income volatility", or the rate of fluctuation in family incomes, has almost doubled in the last two decades while wages have remained flat, families have turned to credit cards as a safety net in tough financial times. As of 2004, when the most recent Survey of Consumer Finances was conducted by the Federal Reserve, three out of every four American households had a credit card. The average debt among households with balances is $5,219. In total, American cardholders owe a staggering $876 billion on their credit cards.

"There's a common misperception that families with credit card debt live beyond their means," said report author and Demos senior policy analyst Jose Garcia, "but the findings presented here show that credit card debt is a serious and quickly growing problem for millions of families who don't have enough income to cover the basic costs of living."

Borrowing to Make Ends Meet shows how credit cards aggravate the financial distress many households now feel — as healthcare, education and fuel costs rise and mortgage payments reset upward--by trapping cardholders in a cycle of debt with unnecessarily punitive fees and interest rates. Exorbitant charges were not always the industry standard; deregulation in the 80's and 90's enabled companies to raise rates far in excess of the risk factor of unsecured debt. Between 2004 and 2005, credit card issuers took in $8 billion in fees alone.

To cope with the rising pressure of credit card debt, and after exhausting other income and assets to meet unexpected costs, America's families have turned to the equity of their homes. Over the last six years homeowners have cashed out a $1.2 trillion (2006 dollars) in equity, further endangering their financial well-being.

Faced with limited or non-existent assets, rising costs, sluggish wages, and increasing credit card debt, many Americans live on the brink of financial ruin. Borrowing to Make Ends Meet documents this reality by providing data on credit card indebtedness by household income, race/ethnicity, and age.

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 (2006 dollars) in home equity, often in an effort to cope with mounting credit card debt and to cover basic living expenses.
  • 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 over 65 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.

Borrowing to Make Ends Meet: the Rapid Growth of Credit Card Debt in America argues for a legislative overhaul to restore fairness in lending practices with a proposed Borrowers Security Act. It also urges Congressional leaders to address the economic factors behind rising debt by promoting increased savings, improving wages for working families, strengthening the unemployment insurance safety net, and tackling the problem of health care costs and insurance.

"Addressing the debt crisis is long overdue," said Tamara Draut, Director of Demos' Economic Opportunity Program. "Using credit cards as a way to make ends meet should not be a part of everyday American life. Neither should borrowing against your house to cover credit card debt or to deal with rising costs. It's time that policymakers recognize the full context of the economic forces hitting the average household today, and take innovative steps to provide stability and opportunity to all families before this credit crisis worsens."

To view the full report, Borrowing to Make Ends Meet: the Rapid Growth of Credit Card Debt in America, visit

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