Filing Bankruptcy News: Families Buy Essentials With Costly Credit
Yesterday Demos and the Center for Responsible Lending released findings from a new national survey of household debt in a report called "The Plastic Safety Net: The Reality of Household Debt in America."
These survey results show that low- and middle-income families are acquiring credit card debt to pay for essentials at the same time business practices in the credit card industry are making this debt more costly and harder to manage.
This report comes just five days before the new bankruptcy law becomes effective and undermines consumers' ability to recover from heavy debt. Research shows that credit card debt in America has almost tripled since 1989 and now stands at $800 billion.
The new bankruptcy law was passed, in part, based on a stereotype that credit card debt results from extravagant and irresponsible use and fuel bankruptcy filings.
The Demos/CRL survey contradicts that widespread belief, showing that lower-income families, by and large, are using credit cards judiciously and trying to pay them down responsibly. Among the findings in the survey:
- Seven out of 10 low- and middle-income households reported using their credit cards as a safety net -- relying on credit to pay for car repairs, basic living expenses, medical expenses or house repairs.
- Households that reported a recent job loss or unemployment, and those without health insurance, were almost twice as likely to use credit cards for basic living expenses.
- Households that used home equity to pay off credit card debt did not gain net benefits. Respondents who reported paying off some credit card debt by refinancing their mortgages reduced their home equity, on average, by $12,000 while retaining average credit card debt of $14,000 -- 18% more debt than homeowners in the survey who had refinanced without paying down credit card debt.
- $8,650 is the average credit card debt of a low- and middle-income indebted household in America.
"The Plastic Safety Net" details current business practices in the credit card industry that make it difficult for lower-income families to manage their finances and stay out of debt, including issuers' ability to change the interest rate and other terms of credit any time and for any reason and based on transactions unrelated to the account.
The report includes recommendations for reforms that would promote economic security for families and establish fair business practices that would result in more equitable and less capricious credit terms.
For the full report and other related information, please visit our Web site www.responsiblelending.org.
About Demos
Founded in 2000, Demos is a non-profit, non-partisan public policy organization deeply committed to the core values of American society: strong democracy, economic opportunity for all and effective government. Through research and advocacy, Demos works across the country to advance ideas and policies that will help ensure everyone has an equal say and an equal chance.
About the Center for Responsible Lending
The Center for Responsible Lending (http://www.responsiblelending.org) is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices.