Sunday, January 11, 2009

Facts on Credit Card Debt. Crushing the American Dream.

"According to latest information gathered by the US Census bureau, there were 164 million credit cardholders in the United States in 2005 and that number is projected to grow to 176 million Americans by 2010." (Source:

Americans have become more and more comfortable with credit cards and debt. We have been conditioned to believe it is normal, even necessary to get into debt, and use "credit" to pay for things.

"76 percent of undergraduates have credit cards, and the average undergrad has $2,200 in credit card. Additionally, they will amass almost $20,000 in student debt. "(Source: Nellie Mae, "Undergraduate Students and Credit Cards in 2004: An Analysis of Usage Rates and Trends")

Students come out of college with massive debt, including high interest credit card debt. This can take many years too pay off if is not at a manageable interest rate. Predatory lenders make every attempt to make high interest loans to college students without their awareness. If your going to college, or your sending your kids to college, be very careful about borrowing money to do so. If you are a parent your best option would be to invest in a 529 plan or ESA account. With a $2000 contribution per year, by the time your child reaches college age you can pay for their college education, giving them a lot less anxiety and a much more secure financial future.

"Approximately 74.9 percent of the U.S. families surveyed in 2004 had credit cards, and 58 percent of those families carried a balance. In 2001, 76.2 percent of families had credit cards, and 55 percent of those families carried a balance." (Source: Federal Reserve Bulletin, February 2006)

The amount of families who carry a debt balance which constantly costs them an increasing amount of money continues to grow. The trend is toward negative cash flow instead of positive cash flow. Don't let yourself get caught in this trend.

"About a quarter of families have no credit cards, and an additional 30 percent or so pay off their balances every month." (Source: Federal Reserve Board survey of consumer finances, 2004)

This is the category you want to fall into. Your better off being in the quarter of families with no credit cards though, because your more likely to save money when you don't have constant access to virtually unlimited spending power. I don't have the figures, but I suspect most of the families who pay their balances every month have a higher than average income.

"The average American with a credit file is responsible for $16,635 in debt, excluding mortgages, according to Experian." (Source: U.S. News and World Report, "The End of Credit Card Consumerism," August 2008)

Not good. The average American is constantly paying credit card companies a portion of their income. Because they have conditioned us to use their products, they have managed to siphon away a portion of the incomes of the lower and middle class. This (along with inflated costs of basic living expenses) the real reason families feel it is now impossible to live without being a dual income family. Elizabeth Warren writes in an essay for Harvard Magazine about the effects of debt on the middle class. She says "Since the early 1980s, the credit industry has rewritten the rules of lending to families. Congress has turned the industry loose to charge whatever it can get and to bury tricks and traps throughout credit agreements. Credit-card contracts that were less than a page long in the early 1980s now number 30 or more pages of small-print legalese. In the details, credit-card companies lend money at one rate, but retain the right to change the interest rate whenever it suits them. They can even raise the rate after the money has been borrowed—a practice once considered too shady even for a back-alley loan shark. When they think they have been cheated, customers can be forced into arbitration in locations thousands of miles from home. Some companies claim that they can repossess anything a customer buys with a credit card."

"28 percent of those surveyed say their ability to pay off their credit card balance has become more difficult." (Source: Javelin Strategy & Research, "Credit Card Issuer Profitability in a Difficult Economy," July 2008)

The credit industry has written the rules to make it nearly impossible for some who have fallen into a financial hole to climb out of it. The same has happened in the mortgage industry. Together these lenders have made middle class life in present times a financial struggle for many. It's time to write our own rules. Rethink the wisdom of acquiring debt. Is it ever a good idea to use a credit card? Is "owning" a home through a "mortgage" really worth it, when you pay 3 to 3 and a half times the value of the home?

"U.S. consumers racked up an estimated $51 billion worth of fast food on their personal credit and debit cards in 2006, compared to $33.2 billion one year earlier." (Source:

We are rapidly making ourselves fatter, and our wallets thinner. Armed with the tools of our own destruction, credit cards, the damage we can do to ourselves is unlimited. We are crushing the American Dream.

1 comment:

  1. You are absolutely right,we are the main culprit,we should start cutting our luxury expenses and stop giving credit cards to undergraduate students who are not matured enough to understand what problem they are going to face in future,Now its high time and we need to check this in order to make America's dream come true.


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