Let’s Look at the Issues
By Peter Ward
The average American family today carries three times the debt load that the average American family carried 20 years ago.
We reported that statistic in 2004 in Hotel Voice. Today, nine years later, the average American family is carrying a debt load that is four times the debt load that the average American family carried in 1984. That fact alone shows that many Americans are using credit cards to buy the goods and services they need to raise their families. In fact, total consumer debt in the U.S. surpassed $3 trillion in 2011, up $1 trillion from 2004! This kind of information proves that the economy is still sluggish, failing to recover from the policies of the Bush administration and its tax cuts for the wealthiest among us. Making matters worse is the fact that the nation’s household borrowing binge too often leads to severe financial problems that are difficult for consumers to correct.
Today, more half of all Americans are now paying just the minimum balance on their credit card statements every month, a large increase in that figure in just the past few years. Let’s admit it, that’s a pretty poor way to provide for one’s family or to save for one’s future. The reason it’s bad is due to simple arithmetic. Not many people realize it, but if you have $10,000 in debt and you pay just the minimum balance on your credit card statement each month, 20 years later the initial $10,000 debt will still be unpaid! And yet too many people are doing just that: they are paying only the minimum balance on their credit cards every month. It means they will be in debt for decades.
We have reported to you on this problem in the past. While paying the minimum balance each month allows consumers to maintain a good credit rating, it also makes them eligible to be approved for additional credit cards. For many, it is temptation that is difficult to resist.
But they should resist! Because if they take out new credit cards they often use them to build up more debt. And that makes it more difficult than ever to meet monthly payments.
You might think it can’t get worse than that, but it can. Do you know that late fees on credit cards have become a huge source of revenue for banks? It’s true, and the average late fee on credit card payments is now more than $30 a month. Worse yet, most credit card companies and banks use a single late payment as an excuse to raise interest rates on the remaining credit card debt to amounts as high as 29 percent. Situations like these show how easy it is for honest consumers to suddenly find themselves unable to meet their monthly credit card payments.
Consumer debt is a problem that reaches every corner of the U.S. Nevertheless, one of the last cynical steps of the Bush administration was to tighten laws regarding personal bankruptcy. And while we remind members that bankruptcy is a covered matter under the Pre-Paid Legal Fund, we can’t emphasize enough how all other options should be explored before taking that drastic step.
Remember, filing for bankruptcy should always be a last resort. Because even though bankruptcy may free consumers from being harassed by creditors, it remains on one’s credit record for many years, during which time no additional credit will be available. As a method to relieve deep debt, personal bankruptcy should always be a final resort.
There are other problems associated with using too much credit. Here is one example that we have mentioned many times in the past: One of the most common reasons members of our Union are turned down for mortgages is not because they have bad credit ratings but because they have good credit ratings. Yes, it’s hard to believe, but it’s a fact. We have many members that make timely credit card payments month after month. And yet when they apply for a mortgage they find that they are not qualified because even though they pay off their credit card debt on time every month, there is not enough money left over to pay for a mortgage.
In an economy where the costs of family needs such as rent, gasoline, tuition, and public transportation often rise above the rate of inflation, it is understandable that consumer debt — and the problems that can arise from it — have reached record proportions.
The fact is that excessive consumer debt was becoming a major problem throughout the U.S. led the Union and the Benefit Funds Office to create Credit Services, a benefit of the Pre-Paid Legal Fund. Credit Services provides assistance for members who are trying to establish credit, restore credit or having trouble paying their monthly bills. Credit education, credit counseling and debt management are available through Credit Services, which is always a better option than bankruptcy.
If you are finding yourself under water financially, or being swept up in a tide of rising bills, the facts in this column show that you are far from being alone and that you may want to use the Credit Services benefit. Call the Pre-Paid Legal Fund at 212-586-6400 for more information.
