It’s figure that gets bandied about everywhere – the average American walks about weighed down by $8000 in credit card debt. That’s a figure that makes for great sound bite, and journalists, expert busybodies on TV and politicians love to throw this figure about to make a point that the economy is collapsing and how most citizens are on the brink of financial collapse. It makes for great copy pronouncing that the economic recovery is done for.
Leaving aside the fact that most people got this from no higher an authority than the credit card research company CardWeb.com, they need to understand that no one who trots this fact out actually understands what it means. And that even CardWeb doesn’t believe that most families owe $8000 on their credit cards. All they said was, that the average family owed $8000 across every kind of service – credit cards, bank loans, car loans, etc. And those families that owe that, happen to also own a credit card. And poorly informed pundits go about hollering that everyone owes that on their credit cards. In reality, only 5% of all families in America owes that kind of credit card debt; most homes actually carry nothing higher than $2000 in credit card debt. And that’s according to the Federal Reserve. And the pundits also misunderstand what an “average” means. Let’s say that you make $10,000 a month, and your friend makes $1000 a month. To say that you make $11,000 between the two of you would be misleading. That’s what an average does. It tells you a lot about nothing.
The handful of people in America who owe that much in credit card debt go and raise the average for everyone else. Get this – one in four Americans doesn’t even have a credit card, a bank card, a retail card or anything. How could it be fair to include those people in the “over $8000 in credit card debt” group?. Those who have credit cards are paying them off really well these days. And the designer of the FICO credit score agrees too.
But really, the whole concept of the credit card is tipped to win for the company, not you. There is a reason why credit card debt is so easy to get in over your head with. To begin with, almost anyone is eligible for a credit card, unless they have some terrible credit history to their name. Card companies fall over themselves to set you up with more credit than you could ever afford, and promise to raise it all the time too. If there was someone to `just give you a loan whenever you asked for it, wouldn’t it be easy for you to get in over your head? They are striving to do this to school kids now; and schoolkids are people who think that the minimum payment is all the bank expects instead of full payment.
What should tip you off that cards are meant to bury you in credit card debt is the fact that they expect so little as minimum payment each month. Sometimes when the law isn’t looking so hard, they lower your minimum payments so far down that it wouldn’t even cover interest for the month. It helps you get by without understanding what kind of a mountain of debt you’re running up, and it encourages you to slowly, dig yourself in a hole, an inch at a time. It is completely possible to end up in bankruptcy when all you do is spend $20 a day on your credit card without thinking about it.
So what is it that we are seeing here? Does the average household spend too much with credit cards or do they spend so little that it would be unfair to say they held $8000 worth of credit card debt? We are trying to say neither, actually. Credit cards like any other tool, can be useful and dangerous, depending on who uses it.