Finances
Study Shows the Hazards of Credit Card Indebtedness
A
fter the financial crash in 2008, cred-
it cardholders cut back on their cred-
it card usage and issuers cut back on
their lending. As a result, credit card bal-
ances fell for 27 straight months and revolv-
ing credit declined $178 billion from its
peak.
But there is still a large group of
Americans who are indebted to their credit
card.
A new study released by Demos,
“Understanding the Debt Difference,”
examines credit card usage among low-
and middle-income families and shows the
effects of credit card indebtedness. It com-
pares the difference between households
who had credit card debt (defined as house-
holds with revolving balances on their credit
card for three months or more) to a non-
indebted group that did not carry a balance
on their credit cards.
According to the study, indebted families
use credit cards to pay for basic expenses and
make up for their lack of assets. However,
this reliance on a credit card increases a fam-
ily’s economic vulnerability and increases
the reliance on credit cards in the future.
The families with credit card debt are more
likely to have experienced unemployment,
an unexpected medical expense, or a loss of
It becomes an
unending cycle of
increasing debt and
swelling interest
payments
health insurance.
“This study is a reminder that credit card
debt has harsh consequences for the house-
holds which have no other options,” says
Bill Hardekopf, CEO of LowCards.com
and author of The Credit Card Guidebook.
“If you don’t have assets, a credit card
may be the only way to pay for essentials.
But once you are caught in this trap, it is
difficult to save and build up the resources
that will help you get through the next cri-
sis. It becomes an unending cycle of
increasing debt and swelling interest pay-
ments.”
Among the low- and middle-income
households that carry credit card debt, the
average card debt was $9,799. Over half
(52%) have had the same or more debt than
three years ago. 54% of these households
have been late or missed a credit card pay-
ment.
37% of families are still paying off a
credit card they cancelled.
Here are additional results of the study:
* 41% of indebted families did not have
have enough money in their checking or
savings accounts—and as a result, have
used a credit card—to pay for basic living
expenses such as rent, mortgages, gro-
ceries, utilities or insurance. Only 18% of
non-indebted households used credit cards
to pay for these basic living expenses.
* Indebted households are less likely to
be homeowners than households without
debt. If they do have a home with equity,
indebted households have 54% less home
equity (an average equity of $93,564) than
households without credit card debt (an
average of equity of $166,997)
* 39% of indebted households had at least
one member of the household lack health
insurance in the last three years versus 25%
for non-indebted households.
* Working-age families with credit card
debt were more likely to be unemployed for
at least two months in the last three years.
37% of working-age families with credit
card debt experienced this level of unem-
ployment compared to 22% of households
without credit card debt.
* One startling note: indebted households
were more likely to hold savings or check-
ing accounts, but the value of these
accounts was lower. 82% of households
with credit card debts held these liquid
assets; the average value was $4,348. 79%
of households without credit card debt held
liquid assets, but the average value was
more than double—$9,845.
Dollars & $ense
Your Financial
Records’ Chaos
Are your file cabinets overflowing? Are
you awash in a sea of old checks, bank state-
ments and pay stubs? Get organized with a
plan that purges the unnecessary and ensures
you’ve saved what you need to keep the IRS
happy should they come calling.
While it’s tempting to hang onto every
piece of paper in case you need it, there are
documents you can go ahead and get rid of
say financial planning experts at the Oregon
Society of CPAs. Reducing that burden will
help you be more organized with the docu-
ments you do need to keep.
Why am i keeping this Stuff
anyway?
There are many reasons to keep records. In
addition to tax issues, you may need to keep
records for insurance purposes or for getting
a loan. Good records will help you identify
sources of income, keep track of expenses,
prepare your taxes, support your tax return,
and keep track of the “basis” of your proper-
ty (the actual cost of your home and any
improvements).
What to keep, how long to keep it
IRS Publication 552: Recordkeeping for
Individuals is available on the IRS website
and describes basic records you should keep
to prove your income and expenses. You can
use it along with the suggestions in this arti-
cle to create your own “Record Retention
Plan.” It can be a simple document – a check-
list – of all the different kinds of paperwork
you have and your decision about how long
to keep each type.
Copies of tax returns. Keep these as part of
your tax records. They can help you prepare
future returns, and you will need them if you
file an amended return. Keep copies of your
tax returns for six years.
Year-end mutual fund and brokerage state-
ments. Keep the year-end versions for at least
three years after the due date of your tax
return. If you are self-employed and, when
you prepared your tax returns you owed the
IRS money, you should keep all your records
at least six years. That’s how long the IRS has
to come back to conduct an audit. Some
financial planning experts advise self-
employed workers to keep all financial
records for at least six years.
april 6, 2011 The Portland Skanner Page 7