NEW YORK (MainStreet) — Americans in general are doing a better job handling their credit cards, but one demographic hasn’t stopped the credit card spin cycle, and that’s low-income Americans. They’re still using credit cards for basic expenses, which is a one-way ticket to debt.
Since 2008 balances for all cardholders have fallen for 27 straight months. The total U.S. revolving debt for all consumers (98% credit card-related) stands at about $794 billion, according to the Federal Reserve’s G.19 report.
The good news is that the number is down from $800.7 billion in December 2010, but the drop is not coming from Americans with lower incomes, at least not as much as their more affluent counterparts, according to a new study called “Understanding the Debt Difference" from research firm Demos.
According to Jose Garcia, associate director for research and policy, and Jennifer Wheary, senior fellow at Demos, poorer consumers have stopped using credit cards to buy goods and services as a convenience, and aren’t paying their bills in full every month to avoid the high interest charges. Instead, lower income consumers are using credit cards “as a lifeline.”
Garcia and Wheary elaborate in the report:
"Many low-and middle-income families turn to credit cards to meet basic expenses when an unforeseen crisis hits — such as a job loss or medical emergency. The additional credit card debt these families take on further inhibits their ability to save. An ongoing lack of savings makes them more likely to have to resort to credit cards — and perhaps more desperate measures — when future crises arise. The end result is an ongoing cycle of economic vulnerability," the report explains.
Typically, less affluent Americans fall behind on their credit card bills because of unforeseen circumstances like the loss of a job or a health issue. Garcia and Wheary call these “economic shocks” and compare how they impact “indebted” versus “non-indebted” families: