The Truth About Credit Card Debt

Recently we noted that 90% of American households thought they held average or below average levels of credit card debt. This made us think that Americans were in denial when it came to their credit card debt since “90%” and “average” simply don’t mix.

But there’s a different (and more likely) explanation. The survey that reported these results calculated its average credit card debt number — $9,300 per household — by dividing the outstanding revolving debt (including business and consumer debt as well as balances that are about to be paid off) by the number of households with credit cards. Turns out the $9,300 per household is way off:

“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.”

Inject bad math into a survey question and it’s easy to see where the problem arises.

“Roper used the bogus figure in a poll question, saying: ‘Some statistics say that the average person has $9,300 in credit card debt. Would you say you have more credit card debt than the average person, less credit card debt, or are you just about average?’ So you can see that the respondents’ answers weren’t delusional or deceptive. They were perfectly understandable because more than 90% of the respondents likely do have less than $9,300 in credit card debt.”

A couple learnings here:

1. Don’t believe everything you read. Companies have agendas when they release surveys — even if it’s reported on by Yahoo, a generally trustworthy financial source. Seems like we should have remembered that one.

2. If median credit card debt is really only $2,200, then it’s not nearly the problem it’s been made to be, right? And yet articles, news reports, surveys and the like continually tell us the opposite. To resolve this disparity, refer to item #1 again.

The big lie about credit card debt [MSN Money]

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  1. JustAGuy2 says:

    If there was one concept that, if universally understood, could most improve our public discourse, it would be the distinction between mean and median.

  2. B says:

    The scary thing is even if the median amount of debt is $2,200, than the mean could still be 9,300, with those 8.3% of the population holding huge debt numbers, skewing the average.

  3. jaredgood1 says:

    @JustAGuy2: Good point. However, since lots of people still cannot grasp the distinction between your and you’re, I wouldn’t hold my breath.

    As for the credit card debt, I’m in the average there (a little over two grand that I racked up after I graduated college last year). Should have it paid off by February.

  4. gorckat says:

    It should have been a two-part question:

    1) Do you think you have more or less debt than the average household?
    2) Approximately how much debt do you have?

  5. polarogak says:

    I don’t think the problem with credit cards is the average balance that a credit card user holds, I think it’s the philosophy of borrowing money you don’t have to pay for things you don’t really need. That money is just too easy to borrow and too easy to spend. The younger we teach kids the benefits of “not buying things,” the better off our economy and the well-being of our country overall.

  6. urban_ninjya says:

    I think I might be one of those people screwing up the statistic. I have a $10,000 motorcycle on what is essentially is a credit card. It’s at a really low 5.9% through. I think I have about $1500 in regular credit card debt, just got back from vacation.

  7. JustAGuy2 says:

    @jaredgood1:

    Yeah, I hear you. I think it could be explained, though. My favorite analogy is this:

    If you take the Rose Bowl and fill all but one seat with Darfur refugees, and put Bill Gates in that last seat, then the “average” (i.e. mean) person is a millionaire.

  8. B says:

    I just want to point out that I specified how this was possible in the first post. Really I blame consumerist for not understanding statistics, and the surveyors for abusing statistics to make their point.

  9. bohemian says:

    What concerns me is all the healthcare providers that try to push people who owe them money to get a credit card for medical expenses.

    Some of the hospitals and clinics are now pushing people to sign up for one of these or they consider it refusing to pay on your bill. So if someone can’t afford to pay said bill or make large payments on it and then refuse the bad idea of a medical credit card they are not cooperating. I understand the idea that someone who is broke not paying their bill is a problem but pushing these people into a credit card is really a bad idea on top of a bad situation.

    One local hospital is doing this when people ask for financial forgiveness on a hospital bill.

  10. shoegazer says:

    (insert snark about lies, damn lies and statistics here)

    $2200 is not a large number in real terms. It’s still way more than what our parents owed, and their parents before them.

  11. SadSam says:

    I would be interested in a survey that asked about (1) how many credit cards a household had and used on a regular basis (2) household income (3) average amount charged on credit cards per month (4) average amount of debt carried over.

    Speaking only about myself, I found that I spend much, much less now that I’m off credit cards. I was never one to carry debt from month to month but charged about $2000 a month on my credit cards. I didn’t think much about my spending, bought whatever I wanted (yes I did save and I did max out my 401k and invested) and didn’t have any real plan for a budget or my spending. Once my husband and I were married and we got serious about our finances (01/2007) we cut up our credit cards and decided to pay off all unsecured debt (mostly husband’s MBA student loan) and started tracking spending and working on a budget. Since I only use my debit card now, I pay a lot more attention to my purchases and I’m much more mindful about my spending. Will I go back to credit after this year, possibly for large purchases where I want to take advantage of 0% deals but unlikely for day to day purchases. My personal feeling is that credit enabled my poor spending habits and lazy financial habits. I think about all the money spent over the last 5 or so years on credit cards and I realize it totals about $100,000 and I realize that at least half if not more of that money could have been properly invested and made me more money.

  12. @polarogak: Totally agree.

    I find it hard to believe that the “real average” is only two grand, though. While I just got rid of my last credit card myself, I run into several new people every day with balances of over ten grand. Granted, my job is to help these people, but it seems like there’s no end to them! …Anyway, if the survey was misrepresented initially, I see no reason to trust it for anything. Better start from scratch!

  13. JustAGuy2 says:

    @Mary Marsala with Fries:

    No offense, but the fact that you (as a credit counselor) see a lot of people with credit problems is like saying that, based on a poll of people in oncologists’ offices, cancer rates in America approach 100%.

  14. Phuturephunk says:

    Bohemian: The reason they’re probably doing that is due to how easy it is to completely fuck you over on card debt as opposed to just plain old medical debt. If it came down to bankruptcy and you were trying to work something out, they’d be much more sympathetic to someone who just owed the hospital rather than a card company.

    At least thats the only reason I can figure.

  15. 3drage says:

    The only debt, besides the nickel and dime monthly bills, is my college debt. Thanks mom and dad, for not planning the future.

  16. TWinter says:

    8.3% of households may not sound like much, but don’t forget how many households there are in the US. If we assume that the population is spread more or less evenly across households and do the math, with 300 million American then something close to 25 million Americans are living in households with more than $9,000 in credit card debt.

    25 million is a whole lot of people!!!

  17. Raanne says:

    hmmmm…. 2k really isn’t bad. especially when you consider that things like furniture, electronics, etc., are usually purchased on 0% for one year credit cards (through whatever store is selling them – no one finances anymore, they just sign you up for a credit card). I pay my balance off on my cards every month, but if i buy new furniture, i’m not going to pay it off until i have too – otherwise that is good interest i could be earning going down the drain. This would skew my balance to be whatever the total amount i purchased was.

  18. tz says:

    Anti-Wobegone, where everyone is below average?

  19. Trackback says:

    CreditCards.com recently released a report saying that the average American household held $9,300 in credit card debt in 2004. This is a big number that would cause great pain for most families if it were anywhere near the real number.