New Report: How Households are Coping in a Fragile Economy

Posted by on August 10, 2009

New Survey Report Reveals Truth Behind Excessive Credit Card Debt in the U.S.
Findings Show Skyrocketing Costs, Dwindling Savings, Stagnant Wages and Medical Debt Major Factors

As the recession continues to squeeze financially vulnerable American households, they are turning to credit cards to make ends meet, according to The Plastic Safety Net: How Households are Coping in a Fragile Economy, a new report published last week by Demos.

This is Demos’ second national survey examining credit card debt among low- and middle-income households–those whose incomes fell between 50 percent and 120 percent of local median income. It provides new information about why households are in credit card debt, how long they have carried their debt, and the impact this debt has had on their economic security.

Research shows that credit card debt in America has quadrupled since 1989 and increased 41 percent just since 2000. Americans now owe over $1 trillion in credit card debt, owing largely to job instability and medical costs, and personal bankruptcies rose from 673,615 in 2007 to over 1.2 million in 2009.

And, just as the recession began to take hold, millions of families had already depleted their home equity to pay off costly credit card debt as home values decreased, leaving them with few assets on which to fall back.

Key survey findings from The Plastic Safety Net:

* The average credit card debt of low- and middle-income indebted households in America is $9,827.
* The average amount of time that households reported being credit card indebted is 5.1 years.
* 3 out of 4 low- and middle-income households reported using their credit cards as a safety net–relying on credit to pay for car repairs, house repairs, layoff or job loss, money given or loaned to relatives, college expenses or starting or running a business.
* More than 1 out of 3 households reported using credit cards to cover basic living expenses, on average for 5 out of the last 12 months.
* The most important predictor of higher “debt-stress” levels was whether a household relied on credit cards to cover basic living expenses such as rent, mortgage payment, groceries, utilities or insurance.
* For 1 in 2 households out-of-pocket medical expenses contributed to a families’ credit card debt, with an average of $2,194 dollars related to out-of-pocket medical expenses.
* The average interest rate paid on a families’ card with the highest balance was 14.8% with close to 1 in 4 indebted households paying more than 20% interest on their card.

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