National Consumer Debt
National consumer debt and bankruptcy debt reflect many different factors, so we will concentrate on consumer credit debt, which accounts for 36% of the national consumer debt figure. Currently, national consumer debt is 2.04 trillion dollars (April 2004), with credit card debt equaling about 750 billion dollars.
"Pre-Approved" Credit Card Offers
Millions of Americans receive "Pre-approved" credit card offers every day. If you have less-than-perfect credit or are swamped in debt, you may be wondering why you keep getting these offers. The average American adult receives 8 credit card offers through the mail each month regardless of his or her credit history. It has become a trend for creditors to offer their cards to all consumers, especially those with credit and debt problems in their past. They know that poor credit habits in the past will cause the consumer to spend more money with their card. Only after the consumer has amassed an enormous balance do they realize that they can only afford the minimum payments. This will in turn accrue plenty of interest charges and other fees, making huge profits for the creditor.
Average Family Credit Card Debt
You might be thinking, " I owe my creditors thousands of dollars - there can't be anyone worse off than me!" Or perhaps you are thinking, "I need to declare personal bankruptcy!" This may be a slight exaggeration:
The average family carries a balance from month to month of $8,000.00.
Most families are in a similar situation. Review the statistics below to see if you fall in line with the national averages. Note: If your financial situation indicates that you are above the national average, do not panic! While bankruptcy is available, it should be the LAST choice.
- For every man, woman and child in the country, Americans owe $2,293.00 in credit card debt (based on current population figures).
- Americans' "national credit card debt" is equal to an average of:
- $3,632.00 per cardholder
- $6,400.00 per household
- $8,000.00 per household with at least one credit card
- The average balance on a single credit card is $8,000.00.
- The average interest rate is 19%
- Late fees are now $35.00
- The average household has 10 credit cards.
- Almost half the households in America report having difficulty paying their minimum monthly payments.
- Americans paid out approximately $82 billion in interest alone last year.
- The typical Minimum Monthly Payment is 90% interest and 10% principal.
Personal Bankruptcy
One indicator of the debt problem in the U.S. is the growing number of personal bankruptcies declared each year. This not only affects the individual consumer for up to 10 years, but it also creates a strain on the economy. Personal bankruptcies are at an all-time high! In 2003 there were more than 1.65 million declared. Reasons for this include a lack of financial literacy among Americans, as well as an inability to control spending habits. Please see our "Options" section or click here for more information.
Other Facts:
If your credit card balance is $8,000.00, and you make the minimum monthly payment at 18% interest, it will take you 25 years, 7 months to pay off the debt. You will pay $15,432.00 in interest charges, (almost twice the balance), bringing your total to $23,432.00.
If you didn't have your credit card payment of $218.00 a month, and instead, you create an investment plan wherein you deposit those funds, in 25years you could retire with $1,354,930.00 in the bank. (Average long-term return rates are 12%.) So credit card debt not only cost consumers thousands of dollars in interest, but also prohibits many Americans from adequately saving for their retirement.
To calculate your Debt to Income (DTI) Ratio, divide your debt by your income. (Ex. A person making $20,000.00 a year gross income with $10,000.00 of outstanding debt has a 50% DTI Ratio.) If your Ratio is over 45%, you will be offered higher interest rates when applying for loans. The lenders will see you as "overextended."