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Study links financial well-being with lack of credit card debt

By , CardRatings contributor
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Despite the trend among U.S. consumers to decrease their reliance on credit cards in the wake of the economic crash of 2008, a recent study shows many Americans are still dependent on plastic for daily expenses and are financially hampered by their credit card debt. In Understanding the Debt Difference, Demos, a New York City-based public policy research group, reports on the results of a survey that showed substantial economic differences between households with revolving credit card debt and those that hold credit cards but don't carry a balance.

Credit card debt makes a big difference

Demos polled 2,248 low- and middle-income American adults between the ages of 18 and 64, dividing them into those with revolving credit card balances during the three months of the study and those with no revolving debt on their credit cards.

The study found substantial differences between households with credit card debt and those without, from their level of employment and medical history to savings and home equity.

According to the Demos report, households with credit card debt were more likely to use plastic to pay for everyday expenses. This reliance on credit for daily expenses can create a debt cycle that is hard to escape, making it almost impossible for such families to save money or get out of debt--especially if medical expenses, unemployment, or other unexpected financial needs come into play.

Those with credit card debt were more likely to have been unemployed at some time during the three years preceding the survey: 37 percent of debt holders versus 22 percent of those without debt. Forty-four percent of indebted households had experienced a major medical expense in the past three years, compared with 36 percent of those without debt.

Households with revolving credit card debt were found to have 54 percent less home equity than those without, as well as lower balances in their savings and checking accounts, and 11 percent lower value of their total assets than those without debt.

The Demos study concludes that credit card debt is intimately linked with other financial and economic factors that impact the ability of a household to handle minor economic shocks and maintain adequate savings.

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