Executive Summary

In the wake of the worst effects of the Great Recession, African Americans, like Americans as a whole, are getting their balance sheets in order and paying down credit card debt. But new research from Demos’ National Survey on Credit Card Debt of Low-and Middle-Income Households finds that African Americans face challenges to their financial security that are unlike those of white households. In early 2012 Demos surveyed a nationally representative sample of moderate-income households carrying credit card debt for at least three months; this paper is part of a series of reports presenting our findings. The results reveal that, for many people, credit cards become a “plastic safety net” to replace dwindling incomes, private assets, and social investments, and to help families stretch their resources when paychecks and savings are not enough. We find that under difficult economic conditions many African American families rely on credit cards to make ends meet or invest in their future—despite paying high interest rates and suffering more negative consequences of debt than other groups.

Among moderate-income households carrying credit card debt:

The African American middle class is paying down debt but still relies on credit cards to make ends meet.

  • African Americans carrying credit card debt owe less than they did in 2008, carrying an average balance of $5,784 today compared to $6,671 in our 2008 survey.
  • Similar to white and Latino Americans, 42 percent of African Americans report using their credit cards for basic living expenses like rent, mortgage payments, groceries, utilities, or insurance because they do not have enough money in their checking or savings accounts.

The African American middle class—like the American middle class as a whole—uses credit cards to make critical investments in their future, including for higher education, entrepreneurship, and medical expenses.

  • Fifty percent of indebted African American households who incurred expenses related to sending a child to college report that it contributed to their current credit card debt.
  • Nearly all of the African Americans in our survey who incurred expenses from starting a new business charged those expenses to a credit card and have not been able to pay it off: 99 percent of African American households still carry that expense on their credit card bill compared to 80 percent of whites.
  • Forty-three percent of African Americans—similar to whites and Latinos—reported that out of pocket medical expenses contribute to their credit card debt.

The African American middle class reports worse credit scores and different causes of poor credit.

  • When asked to identify their credit score within a range, just 66% of African American households report having a credit score of 620 or above, compared to 85 percent of white households.
  • When asked to describe their credit score, only 42 percent of African American households reported having “good” or “excellent” credit, compared to 74 percent of white households.
  • Among households reporting poor credit, African American households were more likely to report that late student loan payments or errors on their credit report contributed to their poor credit scores. White households were more likely to report that late mortgage payments and the use of nearly all existing lines of credit contributed to their poor credit scores.

Moderate-income African Americans have similar rates of default and late payments to moderate-income white Americans.

  • There were no significant differences in the frequency of African American and white households declaring bankruptcy, being evicted, or having property repossessed.
  • There were no significant differences in the number of times African Americans and whites were late on credit card payments.

African Americans are more likely to be called by bill collectors, and to have seen credit tighten.

  • Seventy-one percent of African American middle-income households had been called by bill collectors as a result of their debt, compared to 50 percent of white middle-income households.
  • Just over half of African American middle-income households reported having a credit card cancelled, seeing their credit limit reduced, or being denied for a credit card in the three years following the recession