More American families are turning to credit cards as their financial safety net, citing skyrocketing costs, dwindling savings and stagnant wages, according to a report released this week by Demos and the Center for Responsible Lending.

The report, “The Plastic Safety Net: The Reality Behind Credit Card Debt in America,” presents new findings from a national survey on credit card debt among low- and middle-income households — those whose incomes fell between 50 percent and 120 percent of local median income. The survey provides new information about why households are in credit card debt, how long they have carried their debt and the impact this debt has had on their economic security.

Research shows that credit card debt in America nearly tripled in the 1990s and has increased 31 percent since 2000. Americans now owe some $800 billion in credit card debt. In addition, owing largely to job instability and medical costs, bankruptcies rose from 616,000 in 1989 to over 1.8 million in 2004.

“American families are facing financial hardship not experienced for generations, and we commissioned this survey to tell us precisely why they are turning to credit cards so often” said Tamara Draut, director of the Economic Opportunity Program at Demos and co-author of the report. “The results are clear: wages have stagnated while medical and housing costs have skyrocketed, and if confronted with a layoff or health emergency there are few, if any, personal or public safety nets adequate enough to help in a crisis. Households are turning to high-cost credit cards to keep afloat.”

Key survey findings include:

  • The average credit card debt of a low- and middle-income indebted household in America $8,650.

  • Fifty-nine percent of respondents were in credit debt for longer than one year, with an average length of just over three and a half years.

  • Seven out of 10 low- and middle-income households reported using their credit cards as a safety net — relying on credit to pay for car repairs, basic living expenses, medical expenses or house repairs.

  • One out of three households reported using credit cards to cover basic living expenses on average four out of the last 12 months; households that reported a recent job loss or unemployment, and those without health insurance in the last three years, were almost twice as likely to use credit cards for basic living expenses.

  • Twenty percent of surveyed homeowners had paid off some credit card debt with a mortgage refinance in the last three years, reducing their home equity $12,000 on average. Further, these households still had average credit card debt over $14,000. As a result, they were carrying 18 percent more debt than homeowners who had refinanced a mortgage but not paid down credit card debt — even though their incomes were almost identical. In other words, they were trading unsecured credit card debt for higher mortgage debt secured by their home.

The Plastic Safety Net also reports that, as Americans are increasingly relying on credit cards to pay for essentials that wages no longer cover, reliance on credit cards is having a multiplying effect that is creating millions of “debt-stressed” families:

  • Forty-seven percent of households had been called by a bill collector.

  • Almost half missed or were late with a payment in the last year, with nearly a quarter of households reporting paying a late fee at least one or two times in the past year.

  • In addition to charging late fees ranging from $30 and $39, most issuers also penalize cardholders for late payments by increasing the interest rate on the account two- or three-fold, often after only one late payment. A household with the average amount of credit card debt in our survey ($8,650) would pay an additional $1,100 in costs each year if their card’s interest rate was increased from the typical 12 percent to the average 25 percent “default rate” for one late payment.

“Americans families are losing the fight against an economy and lending practices that are working against them,” said Mark Pearce, president of the Center for Responsible Lending. “It’s time for Washington to address this crisis head-on and create policy that protects, and promotes economic vitality for, all American households.”

The report’s authors recommend reforms to promote economic security, including promoting increased savings to help families meet unexpected financial emergencies; improving wages for working families; improving access to affordable health insurance; and strengthening unemployment insurance coverage and benefit levels.

The authors also recommend reforming “penalty pricing” that saddles financially vulnerable consumers with thousands of dollars in extra fees and interest costs; requiring changes in credit card rates and fees to be related to the original contract and limited to future activity on the consumer’s account; and banning mandatory arbitration clauses that keep consumers from pursuing complaints in court, among other recommendations.

The full report can be viewed at or


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