Take heart: Were actually frugal
A relatively small population with huge credit card debt balances can skew the average to make it look like the typical American is carrying a much bigger debt load than he or she actually is. Consider:
- 23.8% of American households have no credit cards at all — no bank cards, no retail cards, nothing.
- Another 31.2% of the households the Fed surveyed paid off their most recent credit card bills in full.
- So together, the households that owed nothing on credit cards equaled 55% of the total.
Heres some better news: Paying off balances actually became more common between 1998 and 2001. The proportion of households that had bank cards (Visa, MasterCard, etc.) who reported that they regularly paid off their balances in full rose 1.5 percentage points to 55.3%.
We dont carry that much debt
Of the households that did carry a balance, the median amount owed was $1,900. That means half of the households with a balance owed more, and half owed less. (Medians are less subject to the skewing phenomenon that plagues averages; thats why economists tend to favor them.)
If we dig even deeper by analyzing the credit card debts of all the households the Fed surveyed:
- Only 29% of households owe $1,000 or more on their cards.
- 21% owe $2,000 or more.
- 6% owe $8,000 or more.
- 4% owe $10,500 or more.
- 1% owe $21,400 or more.
The Fed statistics pretty much gibe with what Fair Isaac, the creator of the FICO credit score, discovered when it reviewed millions of credit reports.
There are a few differences between the universe the Fed examined and the one looked at by Fair Isaac. For one thing, credit reports are individual — theres no such thing as a household or even a joint credit report. Also, you have to have and use credit to have a credit report. Finally, credit reports dont typically distinguish between balances you pay off and those you carry each month.
But again, Fair Isaacs statistics show a world in which most people are light to moderate users of credit:
- About 48% of credit card holders owed less than $1,000
- About 10% of card holders had total card balances in excess of $10,000.
- More than half of all people with credit cards use less than 30% of their total credit card limit.
- Just over 1 in 8 people use 80% or more of their credit card limit.
Theres still plenty of need for debt relief
Does this mean all the hand-wringing over consumer debt is so much noise? Hardly. Although most Americans seem to be avoiding the credit card trap, there are still plenty of people on the financial edge:
- More than a third — 36% — of those who owe more than $10,000 on their cards have household incomes under $50,000, according to the VIP Forum analysis.
- 13% who owe that much have household incomes under $30,000.
- The percentage of disposable income used to pay debts is still near record highs.
- The median value of total outstanding debt owed by households rose 9.6% between 1998 and 2001.
- Bankruptcies set another record in 2003, with 1.6 million personal filings, the American Bankruptcy Institute reports.
All of that is more than enough evidence to suggest that a large number of people are overdosing on debt. The average American, though, seems to be doing just fine.
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