Credit card debt now exceeds $800 billion

We have written before about how the average household has some $9000 in credit card debt. That’s a lot of money, and it’s probably incomprehensible to anyone who regularly pays his or her bills in full. But few Americans do, and as a result, the bill just gets larger and larger.

The recently passed bankruptcy legislation, which makes it harder than ever to file for bankruptcy, was passed at the urging of the major credit card companies. These companies, which consist of large banks, persuaded Congress to believe that most spending comes from wild shopping sprees by people who just don’t want to pay their bills. The ensuing legislation attempted to insure that people who were just wild and crazy would have to repay at least a portion of their debts. 

The truth turns out to be quite different, however. A recent survey of lawyers shows that some 97% of people who have attempted to file for bankruptcy since the law was passed still qualify. And where did most of these debts come from? Boats? Recreational vehicles? Wild weekends in Las Vegas? No.

Most people in lower income classes are using their credit cards for necessities. In a recent survey, one third of respondents said that they had recently used their credit cards to pay for rent, groceries or utilities. Nearly half had used their card for an auto repair. One third needed to repair a major appliance. One quarter needed to use the card because they had lost their job and had no cash. And 30 percent had some illness or medical catastrophe that required prompt payment.

This doesn’t exactly match up with Congress’ insistence that these debtors ran up the bills on wild shopping sprees, does it? 

The numbers are actually worse than these statistics might suggest. In the last three years, nearly one in ten Americans has refinanced their homes. More than half of those people said they used some of the money from the refinancing to pay down credit card debt, reducing it by an average of nearly twelve thousand dollars. That seems wise, but three years later, these families again have an average balance of nearly $15,000.

What does this mean? It means that we don’t have a spending problem per se, but rather a basic economic problem where people simply cannot pay their month to month bills. It would certainly help if there were a simpler system for providing people who need it with medical care, as medical expenses are always among the top two or three items on the list of heavy debts.

When we have reached a point where hard working Americans are using credit cards to buy groceries because they do not have the cash, we have a problem that’s far bigger than most of us are willing to acknowledge. It would be far better if Congress were willing to address that issue, rather than simply trying to appease the banks by making it harder for people with problem debt to have those debts wiped out through the courts.

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