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A snapshot of American debt shows a troubling picture. See how your mortgage statements, credit card balances and payment practices compare with other Americans' bills.
By Kim Khan
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Polonius wouldn’t have gotten very far in America today. He's the Shakespeare character in “Hamlet” who warned, “neither a borrower, nor a lender be.”
Modern society, as we know all too well, is overrun with both borrowers and lenders. But just how big is the typical family's debt? How fast is it growing? How does your mortgage compare to the Joneses next door? And how might consumer debt -- your debt -- affect the U.S. economy?
We decided to look at the most recent numbers and take a snapshot of household debt in the United States, circa 2004. What emerges is a picture that's both familiar and unsettling. Yes, consumer debt -- encompassing credit cards, mortgages, student loans and more -- is growing like a well-fed St. Bernard puppy. No, there's no sign that the growth will slow. Yes, some economists worry about the ill effects, but no, not many of them are sounding urgent alarms.
It's hard not to be worried when confronted with numbers such as these:
- About 43% of American families spend more than they earn each year.
- Average households carry some $8,000 in credit card debt.
- Personal bankruptcies have doubled in the past decade.
It's not clear exactly where the debt trend will take U.S. consumers or the U.S. economy. But it is clear that both are sailing in uncharted waters.
Consumers owe nearly $2 trillion
American consumers owed a grand total of $1.9773 trillion in October 2003, according to the latest statistics on consumer credit from the Federal Reserve. That’s about $18,654 per household, a figure that doesn’t include mortgage debt. The number is up more than 41% from the $1.3999 trillion consumers owed in 1998.
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Credit card debt in America
Americans carry more than $700 billion in revolving debt like bank credit cards and retail cards. How do you compare to the average American borrower?
Facts and figures on the nation's credit card debt.
- The average cardholder has 2.7 bank credit cards, 3.8 retail credit cards, and 1.1 debit cards. That’s 7.6 cards per cardholder.
- The average household has more than $8,000 in credit card debt, up from about $3,000 in 1990. An $8,000 debt at a rate of 18% interest will take more than 25 years to repay and cost more than $24,000.
- The average interest rate charged by credit cards is 14.71%.
- The total unused credit lines for bank credit cards was about $6,185 per person as of mid-year 2002.
- About 40% of active accounts are paid off monthly. About 3% of credit card accounts are past due by 30 days or more each month.
- The most recent Federal Reserve study showed that 43% of U.S. families spent more than they earned. On average, Americans spend $1.22 for each dollar they earn.
Sources: CardWeb.com and MyVesta.org
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The majority of consumer borrowing, about 63%, is represented by so-called "non-revolving" debt such as automobile loans. But "revolving" credit, which most typically involves credit cards, is an increasingly significant part of the equation. Revolving debt currently totals $735.3 billion; that's about 31% higher than it was only five years ago. The figure has more than doubled in a decade.
Among the key drivers of debt expansion in recent years:
- Unusually low interest rates.
- The rising popularity of Internet shopping, in which credit cards are the currency of choice.
- The hot housing market, which has encouraged buyers to stretch for new homes.
- The aggressive extension of credit to consumers with weak credit scores.
Credit for consumers with fair or poor credit ratings typically comes with higher fees and interest rates, says Lydia Sermons-Ward, spokeswoman for the National Foundation for Credit Counselors. And while that access to capital helps some disenfranchised consumers, the availability of risk-based credit has also greatly increased the amount of debt per household and could lead to more financial problems for families, Sermons-Ward says.
“There is a tendency for consumers to take advantage of credit offers without really thinking through the consequences of overspending,” she says.
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