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A MUST READ Article on Credit Card Debt

By JLP | July 30, 2007

We’re all familiar with the statistic that claims the average American has $9,000 in credit card debt. Well, according to this Liz Pulliam Weston column, it’s a lie. From the article:

  • The majority of U.S. households have no credit card debt, according to the Federal Reserve’s latest Survey of Consumer Finances. About a quarter have no credit cards, and an additional 30% or so pay off their balances every month.
  • Of the households that do owe money on credit cards, the median balance was $2,200 — meaning half owe more, half less.
  • Only 8.3% of households owe $9,000 or more on their cards.

That’s quite a difference from the conventional wisdom!

Why should we care whether or not it’s a lie? Well, according to Liz (and I agree):

Well, for one, it’s irritating seeing a lie quoted in so many news stories, speeches and blog entries about credit card debt. Our national discussions about consumer indebtedness and bankruptcy are being distorted by the idea that we’re waddling around with four- and five-figure credit card debts.

Of course none of this matters if you have lots of credit card debt.

Topics: Credit Cards | 22 Comments »


22 Responses to “A MUST READ Article on Credit Card Debt”

  1. Gaming The Credit System Says:
    July 30th, 2007 at 12:48 pm

    Lies, damned lies, and statistics. You learn in Stat 101 that averages (means) are always a lie when the data don’t match a nice, even bell curve. Whenever dollar amounts are involved, there is no practical upper bound on what’s being measured, but there is a definite lower limit (0) which will apply in many cases. Thus there is a right skew that throws off the mean. Median is a much better measure for the “average” of such data. If you have Bill Gates in a room with 100 homeless people, the mean net worth will be in the billions, but the mean won’t mean anything (no pun intended).

  2. Brian Says:
    July 30th, 2007 at 1:01 pm

    While I don’t consider it a “lie” that the average consumer has $9,000 in credit card debt (since mathematically it is correct), I certainly think it is misleading.

    That being said, it sounds like 45% of consumers are still carrying a balance from month to month. That is still a large portion of the population.

    The scariest part in my opinion is the balance that must be on that 8.3% of consumers that have $9,000+ on their credit card. The balance must insanely high if it makes the average for all households over $9,000.

  3. Miguel Says:
    July 30th, 2007 at 1:29 pm

    I wonder why the CC industry hasn’t vigorously disputed that statistic? It’s a real lesson in how the media latches onto erroneous info that gets repeated over and over so many times, it becomes “fact”.

    The killer is the the stat does not distinguish between business and personal CC’s, nor does it distinguish between balances to be repaid within the billing cycle vs. balances that get carried over. Basically, under these rules, virtually anything charged on a CC by anyone gets counted.

    Nice to know that our country isn’t drowning in as much debt as implied by the pundits. That said, virtually all my friends and family tend to carry over some CC debt, at least some of the time (especially after Xmas). I’d be interested in some more in-depth research on this issue to understand just how harmful (or helpful) CC debt really is to most people.

  4. Emily Says:
    July 30th, 2007 at 2:17 pm

    Did you know that the divorce rate is 40% and has been going slightly down in the past 10 years? This is another one of those widely misquoted statistics. So poeple who feel like everyone in America is getting divorced its only 40%… I do have to say though, the rate of poeple getting married has been going down and cohabitation is rising.

  5. sam Says:
    July 30th, 2007 at 2:24 pm

    It would be nice to have some more definitive data on this, since it seems to be an oft-quoted statistic. And it would be good to have a breakdown on credit card balance vs. income. A $9000 balance would be pocket change for an NBA player, but a killer debt load for the guy working on the lube rack. Again, no affordability perspective – due to the average problem commented on above.

    My take on credit card debt statistic is that in some way there is an element of Anti-Americanism in the way it is propagated. I think statistics like this and others on oil usage, carbon footprints, or what have you – are promoted by persons inside and outside the USA to paint Americans as wasteful, profligate, selfish, stupid, greedy, and so on.

  6. Jeremy Says:
    July 30th, 2007 at 2:54 pm

    I always thought that statistic was saying the average debt of around $9,000 was for those who actually have credit card debt, not just a complete average from everyone. Although in that article that doesn’t seem to be the case so now I’m wondering where I saw that at.

    Since this claims the median number for households with debt is $2,200 I wouldn’t be surprised if the actual average was closer to the 9k mark for those who do carry a balance.

  7. Jeremy Says:
    July 30th, 2007 at 2:56 pm

    This is interesting, it is nice to see Liz is just regurgitating past articles with slightly updated numbers :)

    http://moneycentral.msn.com/content/Banking/creditcardsmarts/P74808.asp

  8. Mr. larry C Says:
    July 30th, 2007 at 4:27 pm

    Someone has to spend, so let them rack up the debt. I’ll spend, get my rewards points and hell go out to dinner……

  9. Foobarista Says:
    July 30th, 2007 at 8:21 pm

    Many people “carry balances” without paying a cent of finance charges, even without 0% offers. All you have to do is pay off your balance every month, but use your card frequently, and you’ll “carry a balance” in that it is unlikely that the CRA will show you with a zero balance on the card. I’d guess that nearly all PF bloggers, for example, “carry balances”, even if they regard themselves as having “zero CC debt”.

    A more interesting number is how many people actually incur interest charges every month versus the overall CC-using population.

  10. Tom Says:
    July 30th, 2007 at 9:38 pm

    I agree with Foobarista. I charge $2-$4,000 each month, however I pay it off every month so as far as I am concerned I have no credit card debt even though my average outstanding balance is probably about $2,200, I use it for convenience and that allows me to earn interest on my $2,200 each month.

  11. mbhunter Says:
    July 30th, 2007 at 10:48 pm

    It’s all in the sampling. The Federal Reserve has its own methodology, and CardWeb.com has its own. At the end of the day, though, if you owe $4,000 you owe $4,000, regardless of whether it’s above the median or not.

  12. thomas Says:
    July 30th, 2007 at 11:02 pm

    I’m in the percentage that has zero debt and pays off every month (except for my CC arbitrage). Even if everyone owed only $500, that still can be an amount some kind find difficult to pay back.

  13. broknowrchlatr Says:
    July 31st, 2007 at 8:48 am

    I hate when people whine just because they are bad at math. This is one situation where neather the mean, nor the median tells you much.

    “Only 8.3% of households owe $9,000 or more on their cards. ” – is it just me, or is that still a big number. Remember, this in an exponential scale. So, maybe 8.3% owe $9000 or more, but many owe a LOT more. I know a neighbor that owes a few times that.

  14. Heather Says:
    July 31st, 2007 at 2:17 pm

    You know, I just have to wonder (and yes, this probably falls into a major conspiracy theory category) if keeping the numbers high is a way to make people more comfortable with the amount of debt they carry, and therefore piling on more. As in, “Oh, I carry $7000 worth of credit card debt, but that’s not bad! Let’s pack on some more debt- I’m still under the average.” Numbers like that always make me suspicious. I know that my own debt is high, and slowly going down, but I don’t need to know where I fall on an “Average Scale”. I don’t want to be made comfortable with the amount of debt I have- it scares me and that motivates me to get rid of it. Am I making sense here?

  15. mapgirl Says:
    August 3rd, 2007 at 10:57 am

    JLP,

    How about running a poll so we could report our balances? Actually, you can just read mine off my blog’s graph, but that might serve as an interesting poll. Sure it would have to have some caveats that PF blog readers are sensitive to managing their money. But this crowd seems to run the gamut between heavy debtors and people who don’t use credit cards at all.

    It would have to be the honor system of course, but it might have some interesting results!

  16. Fellowes Says:
    August 3rd, 2007 at 1:35 pm

    Let’s assume the data is correct, 8.3% of nearly 120 million households, still represents nearly 10 million households with more than 9K in credit card debt. While certainly not a debt pandemic, that is still a HUGE problem in my humble opinion. I also wonder how many of those 10 million are “extreme debtors” like myself.

  17. David Says:
    August 6th, 2007 at 4:37 pm

    “I wonder why the CC industry hasn’t vigorously disputed that statistic?”

    Easy, it gives them more business. It is clear from the statistics that 92% of all people carry less than $9k on their credit card. That is several hundred million of people who won’t feel bad slipping an extra plasma TV on their credit card, because after all, it makes them average. The CC industry wants people to think building huge balances is what everybody does, because they want people to use their cards more often and want new people to sign up. After all, it’s the American way. :)

  18. Steve "The Credit Card Debt Relief Man" B Says:
    August 17th, 2007 at 12:41 am

    I hate lies and it does suck when the newspapers are printing them to candy coat America’s consumer debt problem

  19. finance Says:
    August 29th, 2007 at 8:31 pm

    I found a quote worth mentioning to get rid of these credit card debts

    “One coffee a day which costs $1.50 at a local coffee shop is worth $547.00 from your pocket. Lets give up the coffee habit and go for the gold!” Source: http://www.newcreditpro.info

    How about using that $45/month to put a little money down on those credit card debts. Or if you are like me, and pay for 3-4 coffees per day! Then you got a load of cash if you don’t drink coffee to put money on your credit card.

  20. Natalie Says:
    November 18th, 2007 at 5:28 pm

    I was able to do some research on Cardweb.com, and what I found most interesting about the site is that it does not tell its readers how it came up with the $9,000 debt average. I think if it did, most people would not believe it. Cardweb.com simply divides the total outstanding credit card debt at the end of 2002, which was $750.9 billion, by the 84 million American households that have at least one credit card. If you do the math yourself, you will see the exact number comes out to be $8,939.29. This average IS mathematically correct, but I do agree with Brian, in that it is VERY misleading. It’s misleading because when most people hear or read the word “average” they think “most” Americans have that much debt, but in reality that’s not what that means at all! Certainly some Americans are way over that $9,000 mark and some fall way under it, but we do not have exact figures. Another reason that statistic is misleading is because Cardweb.com does not say whether that figure includes “good” debt like college loans and home loans or if it’s all simply “bad” debt, the things people put on credit and consume quickly. If it contains “good” debt, then I don’t feel a $9,000 average is that bad at all! We, as readers, are just not provided with enough information. We ought to take statistics given to us, especially this one, with a grain of salt.

  21. BMW Insurance Says:
    January 22nd, 2010 at 4:23 am

    I’m going to have to side with Natalie on this one.

  22. Shena Hubschmitt Says:
    December 30th, 2010 at 2:37 am

    Very well written story. It will be supportive to anybody who employess it, as well as me. Keep doing what you are doing – can’r wait to read more posts.

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