What differentiates households that accumulate and carry balances on their credit cards from those that don’t have debt? Building on a national survey of 1,997 households, this study examines two groups of working age low- and middle-income households that are statistically indistinguishable in terms of income, racial and ethnic background, age, marital status and rate of homeownership—yet one group carries credit card debt, while the other has credit cards but no debt.
Contrary to popular belief, we find little evidence that households with credit card debt are less responsible in their spending habits than households that do not have accumulated debt. Instead, we see that, among similarly situated low- and middle-income households of working age, factors like education, value of assets to fall back on, insurance coverage and whether a household member has lost a job are among the foremost predictors of whether a household will accumulate credit card debt.
Among working-age low- and middle-income households, key indicators of credit card debt include:
EDUCATION: Respondents with a college degree are 22 percent less likely to be carrying credit card debt than high school graduates.
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 than households in which no one has been uninsured.
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.
SAVINGS AND HOME VALUE: The average household without credit card debt reports an amount of savings nearly three times times greater than the average household with credit card debt; meanwhile homeowners that have negative equity in their homes are 24 percent more likely to be carrying credit card debt.