In Kiplinger's Personal Finance magazine's November issue, they have a piece titled "Debt Police Who Go too Far" (sorry, no link up on it as I write this.) It talks about hardball tactics used by credit collectors -- some real nightmares are happening out there -- just another reason to get and stay out of debt.
But it's not the article I want to discuss in this post, but a chart near the end of the article. It's titled "debtor nation" and gives some facts on debt in the U.S. from Experian and the Federal Reserve:
- Average credit-card debt among people who carry a balance: $12,338
- U.S. households that carry a credit-card balance (2004): 46%
- Families with debts overdue 60 days or more (2004): 9%
Ok, before everyone chimes in and says that the AVERAGE number is misleading because it's probably so high due to a few individuals with a ba-zillion dollars of debt, let me say that if the MEDIAN is even half this amount, it's still a big number.
And 46% of households carry a credit-card balance? I'm floored! Are these people uneducated, unable to control their spending, or just crazy? Yes, I'm sure there are some (a handful) who are using credit cards to get by with necessities, but even that's up for debate. In the U.S., we're so out of whack that high-speed internet and two Starbucks a day are considered "necessities" by many.
All I can do is try to help those of you who are in this situation and want to get out. I'd suggest you check out Best of Free Money Finance: Credit Card Posts and Best of Free Money Finance: Debt Posts for lists of resources that will help you get and stay out of debt.
"Are these people uneducated, unable to control their spending, or just crazy?"
Wow, a little condescending maybe? I read your site a lot but I have to say, sometimes it seems like you sit on a high horse just because you are proud of what you have done financially. I'm neither uneducated or crazy but maybe I was unable to control my spending - I'm getting a handle on it now. That doesn't make you better than me. I'm honestly not the type to say something like this to someone I don't know, but I was really taken aback by the tone of this post.
Posted by: Kim L. | October 17, 2006 at 11:42 AM
The assumption is always that people are making "bad" decisions and quite frankly I'm not so sure of that any more. I just went to the grocery store last night and paid $5.99 for a gallon of milk, $1.99 for a loaf of bread and $1.89 for a dozen eggs. Total = $9.87 for 3 items. If you earn minimum wage, it'll take you two hours to earn enough money to buy three basic food items. I have a copy of the receipt on my blog so I'm not exaggerating either. I also bought some juice, fish, shrimp (on sale) and some donuts. The total was over $30. A person making minimum wage would need to work 6 hours to buy the stuff I just bought and none of it is "extravagant" or frivilous food items except perhaps the doughnuts.
Posted by: Rich Slick | October 17, 2006 at 12:24 PM
Kim --
I've dealt with people in debt (and tried to help them climb out of it) for over 15 years now and I can honestly say that it's almost always a case of them simply not being able to control themselves. They are uneducated about basic financial principles, act in crazy ways (like ways that will ultimately lead them to ruin), and are certainly unable to control their spending. The numbers bear this out -- re-read the stats above. There's no way so many people should have so much debt (especially credit card debt) if they're making rational decisions.
The only way I've seen people reverse their bad spending habits is to be shocked out of them -- either by financial disaster (which is what usually happens) of by words (which is what I'm trying to accomplish here). Believe me, the latter option is much better than the former.
Rich --
Are there people who are simply poor and can't make ends meet? Yes. I said that, didn't I? But it's not 46% of the population -- not even close.
Posted by: FMF | October 17, 2006 at 01:07 PM
Rich, where did you shop? I can buy milk in my area for between $2-3 per gallon, depending on the cream content. Maybe I'd have to pay that price in a convenience store -- don't know as I don't shop there. How much was for the donuts, and what is the nutrition value?
Maybe you should decide to shop around a bit and see if you can get a better price.
Posted by: Mike | October 17, 2006 at 02:07 PM
I bought at a very large grocery chain. The milk is organic (which I consider the only REAL milk) which also probably represents the true cost of "original" milk vs the "industrialized antibiotic/pesticide/hormone induced milk" of the $2/$3 variety. The donuts were 1.99 and they were for the kids as a treat no real nutrition there.
As for shopping around or elsewhere, I thought you had posted some other day that it was kind of dumb to drive 15 miles across town to save $1 on a gallon of milk?
Posted by: Rich Slick | October 17, 2006 at 02:16 PM
Rich -- Are you talking to me or Mike?
Posted by: FMF | October 17, 2006 at 02:23 PM
LoL, Mike I guess but I thought you had put that last comment.
Posted by: Rich Slick | October 17, 2006 at 02:33 PM
concerning the price of milk...there is no difference between organic and conventional milk - other than a hefty price hike for organic. Milk is like cars or laundry detergent - you can pay for a Mercedes or Hyundai, Tide or store generic - and get the same product. You just have to decide how much marketing sizzle you want to pay for. If you're not paying for a true difference in quality on any consumer item, then your spending is indeed out of your control.
Posted by: MrAtoZ | October 17, 2006 at 04:08 PM
Though I (and the people I know) may not be representative of everyone in this country, virtually everyone I know who carries a balance on their credit cards are not ignorant or spendthrift. Rather, they decided they needed to continue to eat and pay rent while they were unemployed for a time. Yes, it's ideal if you have an emergency fund to carry you through difficult times, but if you've just graduated college and have nothing in the world, including a job, that's not really possible.
Posted by: Meaghan | October 17, 2006 at 04:36 PM
i admit this is getting a little off track, but about the no difference/organic milk comment, i too only consider organic or at the very least hormone-free diary products as much of the time as possible. some of us may consider this important. it's a quality issue, not 'sizzle'. health trumps $. in the states, it tends to matter. perhaps not so much in other countries (because of the different way they tend to process dairy in europe for instance...).
anyway, i get rich slick's Original (1st) point and it is a valid one. glad it was mentioned.
Posted by: ib | October 17, 2006 at 05:11 PM
ok re debt -- i had crushing (unsecured) debt and chose to chip away out of it and dig myself out on my own. i feel fortunate i did not have to file bankrupcy as i know others who have for less debt (mine was about $35-40K at it's worst); was also a firm personal decision re not filing bankrupcy. it took me years, but i did it. since it's been paid off, i now always pay off any credit card balances each and every month no matter what.
how i got into that debt in the first place was a combo of things including inventory theft(mine, i was a private contractor), some bad (and perhaps immature) decisions, healthcare costs, unemployment, & breaking up with a domestic partner (i had to move out of the shared apartment after which i moved to a bad neighborhood, but was luckily the cheapest i could find innercity, this all during the employment lapse, too). tho i have supported myself since age eighteen, this all happened in my midtwenties.
even just high interest rates can help one's debt to completely snowball. my rates eventually became negotiated, when at it's worst, but still added to the owed amount of course, over the time i was paying it off.
Posted by: ib | October 17, 2006 at 05:28 PM
I think one of the big problems is that the card companies set the minimum payment so low. The minimum on my bills typically runs about 1-2% of what I owe. I always pay off the full amount (barring 0% interest situations), but I know many people who simply pay the minimum by default and don't really think twice about it. They think that paying less now means they have more money, and they don't think about the interest they will be accumulating debt.
Catch A Gideon
Posted by: Brendan | October 17, 2006 at 06:54 PM
At the risk of contributing to the thread drift, organic products need to be evaluated on a per item basis. The introduction of federal standards to define "organic" have lowered the bar and most people who have sought out organic foods over the last decade have become increasingly discouraged by what they see. It used to be a useful shibboleth for determining quality but the buyer must be ever aware. Most ardent followers have migrated toward Community Supported Agriculture to seek out higher standards. That said, milk *is* one of the products which is more healthy through organic producers.
Consumer Reports (http://www.consumerreports.org:80/cro/food/organic-products-206/when-buying-organic-pays-and-doesnt/index.htm) offers a useful guide to buying organic.
Posted by: Duane Gran | October 18, 2006 at 09:07 AM
You'll be glad to know the median balance isn't anywhere close to $12,000, or even half that. According to the Federal Reserve's Survey of Consumer Finance, the median balance among the 45% of U.S. households that carried ANY credit card debt was $2,200 in 2004, the latest year for which figures are available. The median balance in 2001 for the same group was $2,000.
Posted by: Liz Pulliam Weston | October 18, 2006 at 04:45 PM
Liz --
Is that really you? I feel honored that you read FMF. I LOVE your articles (and link to them quite often)!!!!
So, if the average is $12k and the median is $2,200, then there are a small number of people out there with HUGE balances bringing up the average, right?
Posted by: FMF | October 18, 2006 at 04:56 PM
How is "carried any debt" calculated? We use the CC for autopayments and web purchases, and pay it off every month. But technically we "carry debt" since our balance is usually not $0 for very long. So, I wonder if the median is pulled down by people like us who actively use credit cards but don't ever pay finance charges?
Posted by: Foobarista | October 20, 2006 at 07:28 PM
The person who paid nearly six dollars for a gallon of milk must have purchased organic milk.
Those on minimum wage could not have the luxury of buying organic foods. We don't live on a minimum wage income, but I can't afford organic products. I never pay more than $2.50 a gallon for milk, and often get it on sale for $2.00 a gallon. When I see a sale, I stock up and freeze milk. It works great. As for bread and eggs. Make bread for pennies, and stores regularly have 18 eggs on sale for a dollar where I live. Shopping around, and noting prices of items at several stores can save a lot of money. Don't say you don't have time, I did it when I worked full time, had mom with Alzheimers, a family, and a large house to care for.
Posted by: Nan | October 23, 2006 at 01:31 PM
I wonder too what carrying a debt means. There are many reasons why you could have debts that are not necessarily bad. In business classes they taught us to try to balance "healthy debt" to leverage our resources. I frequently do this with 0 interest cards. The statistic is misleading.
http://www.catchagideon.com
Posted by: Brendan | October 26, 2006 at 10:48 PM
We do need to face reality...we are knowingly, willingly and stupidly putting ourselves in debt! I do feel empathy for the college kids who are paying rediculous amounts for degrees but often times it is people who need that upgraded cell phone, extravagent wedding, new furniture, you get the picture. I'm no different and now we are slowly climbing out of debt but only because of my husband's good job (which by the way he got without a degree)...sadly, many will have the golden arches to look forward to instead of the golden years.
Posted by: Rebecca Albert | September 09, 2007 at 05:54 PM