Editorial

Credit-card debt explained

Wednesday, July 19, 2017

America’s credit-card debt has surpassed the $1 trillion mark. A 20-something fellow I know helped me understand why.

“It all began in college when a credit-card company offered me a free credit card,” he said.

“OK.”

“Well, shortly after I got the card, my transmission blew up, and I didn’t have the money to pay for it. So I charged it.”

“That’s an unpleasant thought.”

“Yeah,” said the fellow. “I maxed out my credit limit on my first purchase, but that wasn’t a problem because the credit-car company doubled my limit!”

“How kind of them,” I said.

“Then Christmas came along, and I used my card to get my girlfriend a diamond necklace.”

“How’d that work out?”

“She left me for a guy with a bigger credit limit! I went to the nearest bar to drown my sorrows. I bought rounds for everyone.”

“How did you afford that?”

“Fortunately, I’d gotten several other credit cards in the mail.”

“More cards?” I said.

“Yeah, I got one credit card from my college, one from an airline, one from the computer store ...”

“You bought a computer?”

“You don’t expect me keep track of all my debt without a computer, do you? I also got a credit card from the hardware store.”

“What did you use that for?” I said.

“I remodeled the kitchen, bathroom, family room and living room.”

“I didn’t know you owned a house,” I said.

“Who said I owned a house? Well, the cards kept rolling in. I purchased clothing, gas for my car, food at the grocery store and even fast food.”

“And now you’re in some very serious debt,” I said. “I hope you’re earning enough at your job so you can pay back all your creditors.”

“Who said I had a job?”

“If you have no job, how have you been making the monthly debt payments?” I said.

“Payments? What payments?” said the fellow.

“But of course,” I said. “Your story offers some insight into why so many Americans are carrying so much credit-card debt. It explains why total household debt, including mortgages, student-loan balances, credit cards and car loans, has reached a record $12.73 trillion.”

“Hey, it’s not all my fault. The credit-card companies are tripping over themselves to give me credit!”

“That is true,” I said. “The high interest rates on credit cards can generate handsome profits for banks. They continue to send out millions of solicitations to sign up new customers. And though delinquencies are beginning to tick up, they still remain near historical lows. That is according to the American Bankers Association’s Consumer Credit Delinquency Bulletin.”

“You worry too much,” said the fellow.

“Perhaps. Some debt is a good thing. It allows us to buy reliable new cars and houses. But too much debt is a very bad thing. CNBC reports that the cost of living over the past decade has increased faster than household incomes. More Americans are ‘bridging the gap’ by borrowing against their credit cards.”

“What’s the big deal?” he said.

“The big deal is that they may eventually reach a point of indebtedness at which they cannot repay what they owe. That will not only destroy their credit, but, if enough Americans default, it could do considerable damage to the economy.”

“So what do you recommend?”.

“I recommend that you stop spending money you don’t have and figure out a way to pay off your debt,” I said.

“Great idea,” said the fellow. “Know where I can borrow the money to do that?”

“Oh, brother.”

© 2017 Tom Purcell.