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Is credit card debt "the American way?"

by Peter Andrew

On Tuesday, UPI reported on research carried out by Oregon State University (OSU). Its article appeared under the headline, "credit card debt called 'the American way.'" Just how fair is that?

Very fair, according to Michelle Barnhart, one of the OSU researchers who conducted the study. She told UPI that various factors have "created a culture of debt" in America. And she went on: "It's easy to sit back and blame consumers for just spending too much, but the truth is we have an entire infrastructure set up to support, maintain and encourage credit card use and debt."

Credit card debt down

But hang on a minute. The Federal Reserve publishes its Consumer Credit statistical release every month, and revolving credit (mostly credit card debt) has fallen on every single occasion except one since the credit crunch hit in 2008. It's plummeted from a high of $957.5 billion in 2008 to a new low of $794 billion in February. People either owe money to credit card companies or they don't.

But that's the main problem with the Fed's analysis. It only measures how much consumers owe to credit card companies. Once those card issuers write off a balance as uncollectible and pass on the debt to a collection agency, that amount disappears from the official statistics just as surely as if it had been paid off properly. And banks have written down many tens of billions in this way.

Scary credit card trends

Here are five random facts that put some credit card trends into context:

  1. In January, 54 million American households between them owed $800 billion in credit card debt (Equifax)
  2. On average, Americans devoted 9.3 percent of their incomes to servicing their debts in 2008 (OSU)
  3. Some households owe a whopping 17 percent of their income to credit card companies (Equifax)
  4. As a national average, credit card borrowers owe $4,965 on their plastic (Transunion)
  5. Credit card debt actually increased in 33 states between the third and fourth quarters of 2010 (TransUnion)

Credit card use set to rise?

That last statistic prompted Michelle Singletary of The Washington Post to write earlier this week an agonized column, which said:

"There it is folks. Are we are headed back to business as usual, putting more credit in the hands of more people? Wasn't it consumer overconfidence that led so many people to become so deep in debt in the first place? People thought they could handle credit. Turns out they couldn't."

Only time will tell whether Singletary's analysis of future credit card use is overly pessimistic. There seems no doubt that a return of consumer confidence--along with its accompanying credit use hike--are prerequisites of a full economic recovery. The trick this time could be to be more realistic over lending and borrowing.

Published 04/22/11 (Modified 10/30/12)

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