The Truth About Credit Card Debt

Take a look around the Web and you’d think the average American family is drowning in credit card debt. “The average credit card debt for a U.S. household is $15,422,” said a press release I received earlier this year.

Really? Let’s put this into context, lest we all believe that the spending of the average American is out of control.

One of the best sources is the Federal Reserve’s Survey of Consumer Finances, last done in 2010. It said credit card debt had dropped significantly over the previous three years: “Overall, the median balance for those carrying a balance fell 16.1 percent to $2,600; the mean fell 7.8 percent to $7,100.”

Here’s the key: “Median” means that half the households that carried a balance had a balance of less than $2,600 and half had a balance exceeding $2,600. “Mean” or “average” is the number you get when you divide the total debt by the number of households that carry a balance.

The Survey of Consumer Finances also said:

Many families with credit cards do not carry a balance. Of the 68.0 percent of families with credit cards in 2010, only 55.1 percent had a balance at the time of the interview; in 2007, 72.9 percent had cards, and 61.0 percent of these families had an outstanding balance on them.

Sure, that information is a bit outdated. The Fed will conduct the new Survey of Consumer Finances this year. Meanwhile, credit card companies have loosened up their lending standards and raised credit limits, which suggests that more households have credit cards and probably more households have credit card debt.

But there are other indications that a large number of Americans are being responsible with credit cards:

• The Federal Reserve Bank of New York said credit card balances decreased $19 billion to $660 billion in the first quarter of this year.
• The Associated Press recently reported on new numbers from credit bureau TransUnion:

Average credit card debt per borrower fell 1.7 percent to $4,878 in the first quarter from $4,962 in the same period last year, TransUnion said. (Emphasis added.)

On a quarterly basis, it declined 4.8 percent from $5,122 in the fourth quarter.

TransUnion, however, has forecast that average credit card debt will rise by roughly 8 percent to $5,446 by the end of this year — the highest level in four years.

• Millennials are better at avoiding debt than older folks. The Los Angeles Times recently reported on a new analysis by the Pew Research Center:

More young households had no credit card debt in 2010 than was the case in 2001, the data show. Among those who did owe on their credit cards, the median amount fell from roughly $2,500 to less than $1,700.

• Those in college have also gotten smarter about credit card use. Wrote Credit.com:

Today, just 35 percent of college students have credit cards in their name, down from 42 percent just two years ago, according to a new survey from Sallie Mae and Ipsos. However, part of that seems to be related to the new age restrictions set by the federal government, as just 18 percent of freshmen have accounts, compared with 60 percent of seniors.

However, it seems that regardless of age, many [college students] are being far more cautious about their balances, as less than one quarter had balances of more than $500, while one third kept none at all, the report said. Another 42 percent had balances of $500 or less. Moreover, just 23 percent said they’ve received some financial assistance from their parents when it comes to paying these bills.

As an aside, while much has been written about huge student loan burdens, most students aren’t borrowing shocking sums to attend college. Overall student borrowing has increased in large part because a growing number of people have been attending higher ed.

A Federal Reserve report issued in 2012 and revised this year says:

The median borrower holding student loan debt in the fourth quarter of 2012 owed $13,924 in student loan debt. The average amount of student loan debt across all consumers with student loan debt was $24,699. The difference in average and median reflects the existence of borrowers at the top of the distribution with especially large amounts of student loan debt. About 3.1 percent borrowers have six-figure student loan debt, while 0.5 percent have debt over $200,000. Twenty percent of borrowers held more than $29,846 in student loan debt in the fourth quarter of 2012, while another 25 percent held less than $6,003 in student loan debt.

In all my reading about credit card debt, here’s the most worrisome fact I found, in the Fed’s Survey of Consumer Finances: “One group that saw substantial increases in the use of credit card borrowing is families headed by someone 75 or older.”

So where did this $15,000-plus credit card debt number come from? NerdWallet, one of several websites that have produced a number in that range, says it extrapolated from various government reports and offers its explanation here.

It says $15,216 is the average credit card debt among all households that carry a balance and that the eye-opening amount is “the result of a small number of deeply indebted households forcing up the numbers.” In other words, most of those who have credit card debt owe much less than that.

So, the next time you’re feeling pretty smug about having a zero balance on your credit card, maybe you’re not so special after all. But you should still feel pleased and proud about not having credit card debt.