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Credit card debt 'crushing millions,' group says
In this story:
December 16, 1997
- Low-income families in greatest jeopardy
- Banks say 96% pay on time
- 'Watch me cut up the credit cards'
- Related sites and story
Web posted at: 8:45 p.m. EST (0145 GMT)WASHINGTON (CNN) -- While 'tis the season to be jolly, experts say 'tis also the season that can lead to financial ruin for those who are not careful with their credit cards.
Overspending with credit cards, says the Consumer Federation of America, is an obsession that can get out of control.
In a report released Tuesday, the group was especially critical of aggressive marketing by the credit card industry that it says has left millions of Americans saddled with excessive debt. It also singled out banks it believes are irresponsible in extending credit.
A banking industry group disputed the conclusions, saying the expansion of credit card marketing has enabled people with lower incomes to get credit.
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CNN's Kathleen Koch reports
"Millions of households carry far too much high-cost credit card debt," Stephen Brobeck, the CFA's executive director, said at a news conference. He added that banks and consumers must act to resolve the problem and that consumers "must exercise more discipline."
Stan Jones racked up $22,000 in debts before his binge came to an end. "Anything I could use I accepted," he says. "I used up to the maximum limit."
Low-income families in greatest jeopardy
While Jones' case is an extreme example, the CFA estimates that 55 million to 60 million American households with revolving credit card balances had an average of more than $7,000 of credit card debt.
Not paying off that debt, it says, costs an average of $1,000 a year in interest and fees.
"Clearly, credit card debts are crushing millions of households financially, and heavily burdening tens of millions of other households," said Stephen Brobeck, the CFA's executive director.
In greatest jeopardy are low-income families who tend to carry higher credit card balances than more affluent families.
Part of the problem is that banks are marketing credit cards more aggressively than in the past. They are spending more on advertising and telemarketing, and mail solicitations reached record levels this year.
Banks are also issuing more credit and higher credit lines -- a practice the CFA criticizes.
The CFA says the least responsible banks -- as measured by their charge-off rates for debts considered uncollectible -- are Mellon (charge-off rate of 9 percent from June 30, 1996, to June 30, 1997), Hurley State (9 percent), Wells Fargo (8.6 percent), First Union (8.4 percent) and Advanta (8.2 percent).
Banks say 96% pay on time
Spokesmen for the five card issuers didn't immediately return telephone calls seeking comment.
But the American Bankers Association said in a statement that banks have expanded their credit card marketing "to give people at all income levels access to credit. It is important to note that while those credit card customers have a variety of credit histories, more than 96 percent of all accounts are paid on time."
The bankers' group said charge-off rates reflect credit decisions made two to three years ago, and that since then banks have tightened their standards for extending credit.
"Consumers are the only ones who really know their situation," says Thomas Layman, a senior vice president for Visa. "Another analogy I would use is, 'Is it fair to blame a candy store for obesity?'"
Visa says that for every 1,000 solicitations mailed, about 20 are responded to by consumers, and that it is "wrong to equate how issuers market credit cards with the actual extension of credit."
The most responsible banks, according to CFA, are MBNA (charge-off rate of 2.1 percent), Peoples (2.4 percent), Travelers (2.7 percent) and First USA (2.9 percent).
'Watch me cut up the credit cards'
Brobeck had this advice to consumers for the holiday shopping season:
- Carry only one or two major credit cards and limit total credit card debt to 20 percent of annual income.
- Try to pay off all credit card balances in full every month, or to consistently pay down balances until they are gone. Pay more than the minimum required payment each month.
- If you need help, contact your local consumer credit counseling service. It can be located in the phone book white pages or by calling 1-800-344-7714.
If none of that works, go cold turkey.
"If you want to see a grown person cry, sit in one of my counseling sessions and watch me cut up the credit cards," says Betty Matthews, a consumer credit counselor. "Yes, we do. We cut them in half."
Correspondent Kathleen Koch and The Associated Press contributed to this report.
Related story:
- Debt 101: College graduates learn reality of loans - October 23, 1997
Related sites:
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- American Bankers Association
- Pitfalls.com - The Pitfalls of Plastic Credit Cards
- Consumer Credit Counseling Service Home Page
- RAM Research Group - credit card monitoring group
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