Is credit card debt a hindrance?

By Ross Densley
From http://www.usfst.com/

US Credit Card Debt

With the recession forcing more and more Americans to burden their credit cards with debt, it's time to ask whether the increasing accrued costs are manageable, or are detrimentally impacting lives.

Unless you've had your head in the sand for a few years, you know times are hard. For those old enough to remember they aren't Great Depression hard, but for most of us, poor economy, lack of opportunities and a loss of jobs equal a rolling snowball which carries with it exceeding pressure to find money we don't have, and in turn means we turn to the plastic more than we would like.

And the numbers don't lie. In the last decade, 22 million more Americans have got their hands on a credit card, bringing the figure to 181 million, up from 159 million in 2000. This doesn't tell the whole story, as around half of the cardholders have more than one credit card, with 14 percent having up to ten credit cards, (yes you read that correctly, ten!) meaning the total number of credit cards in circulation in the U.S is estimated at around 1.5 billion. That means the potential for spending is gargantuan ($2.1 trillion in 2008 to be precise, up from 1.4 trillion in 2003) and in turn, the potential for crippling debt ($972 billion in 2008, up from less then $8 million in 1968).

Alarmingly, almost 15 percent of families have debt exceeding 40 percent of their income.

The average outstanding credit card debt for households that have a credit card was $10,679 at the end of 2008.

Debt by the numbers

In 2006, fee's alone cost consumers $17.1 billion. Over the past 10 years, household debt has grown by 147 percent, with credit card debt growing by 69 percent. Credit card debt slowed to less than half of household debt primarily because consumers borrowed against equity in their homes to pay down credit card account balances, says lowcards.

One look at the top ten some top credit card issuers in 2008 shows that credit card issuing is a profitable business. Topping the list is US Bank, recording profits of £1.07 billion, with Capital One also recording profit over £1 billion. Other top profits belong to Wells Fargo at $990 million, and American Express with $850 million. Only Citi Bank recorded a loss, at $530 million. This in part is because the average credit card APR is 14.9%, the average penalty/default rate is 23.9%, going as high as 32.24% (Chase), and the average late-payment fee is $25. Cardholders also pay $25 on average for encroaching over their limit fee.

The debt, it appears, is spread evenly geographically and demographically.

Undergraduate spending

Undergraduates have long been a target of cardholders, and with rising college fees, undergraduate credit card debt is averaged at £3,173 per student. One investigation highlighted nearly 30 percent of undergraduates put tuition on their credit card, an increase from 24 percent in 2004. In total, 92 percent of undergraduate credit cardholders charged textbooks, school supplies, or other direct education expenses, up seven percent from the previous study.

Thankfully this could become a thing of the past, as new laws are coming in to protect those students buying stuff on the plastic. The Credit Card Accountability, Responsibility and Disclosure Act (CARD) is an attempt for consumer protection and should hold credit card companies more responsible, the CARD Act ends certain fees and the increase of high interest rates.

"This marks a turning point in helping to protect consumers from practices that have gotten us in the hole we’re in now,” said Jared Bernstein, chief economic advisor to Vice President Joseph Biden. “It’s unfortunate when young people get in over [their] head with credit cards."

In the UK, Prime Minister Gordon Brown has taken measures to protect those cardholders most vulnerable to rising debt, namely by forcing credit card lenders to change the way they make consumers pay off their debt.

Eighty-four percent of undergraduates indicated that they felt they needed more education on financial management topics. And with no light at the end of the recession tunnel, it seems its not only undergraduates who could do with help with regard to spiralling debt.

Credit Card debt accounts for just over 2 percent of America's total debt.