Low to Middle Income Consumers’ Credit Card Debt Decreases

Demos, a multi-issue national organization, conducted a survey – “2012 National Survey on Credit Card Debt of Low-and Middle-Income Households”.  This survey was conducted in February and March 2012, with a sample of 997 low- and middle-income American households, who carried credit card debt for three months or more. Similar research was conducted in 2005 and 2008. This research looks at the impact of the recession and the Credit Card ACT.

Since 2008, credit card debt improved, fewer consumers paid late fees, and fewer had their interest rates raised by making late payments.  The top reasons for credit card debt were unemployment, student debt and medical expenses.

Comparisons to 2008

The responders reduced their credit card debt in four years by 27.7 percent.  It was $7,145 in 2012 compared to $9,887 in 2008.

The proportion (40 percent) of households who used credit cards to pay for basic living expenses, such as rent or mortgage, groceries, utilities or insurance, remained the same from 2008 to 2012.

Since 2008, 39 percent of households experienced tighter credit, such as having credit cards canceled, credit limits reduced, or being denied a card when applying.

Impact of the Card Act

33 percent paid more toward credit card balances per month.

The proportion of households who paid late fees on their credit cards was 28 percent in 2012, compared to 50 percent in 2008.

24 percent fewer households reported interest rates increasing as a result of a late payment in 2012 than in 2008.

When asked about over the limit fees over the past two years:

49 percent didn’t know or didn’t pay attention to over the limit fees.

22 percent were charged for late fees less often.

22 percent were charged over the limit fees about the same.

2 percent were charged over the limit fees more often.

The top reasons that contributed to poor credit scores

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There were more than one reason their scores were low, so the numbers total more than 100 percent.

61 percent paid credit card bills late.

55 percent had unpaid medical bills or debt.

38 percent used all or almost all of credit lines.

38 percent paid other bills late such as cable or phone.

33 percent were late on mortgage payments.

30 percent were late paying utilities.

18 percent were late paying student loans.

14 percent declared bankruptcy in the last seven years.

Major contributors to credit card debt

86 percent of those that suffered job loss said that job loss contributed to credit card debt.

71 percent of those pursuing higher education said tuition and college expenses contributed to credit card debt.

47 percent said medical expenses contributed to credit card debt.

Length of time they plan to be completely out of credit card debt

43 percent will be out of credit card debt in less than 6 months.

19 percent will be out of credit card debt within 6 and 12 months.

16 percent will be out of credit card debt within 13 and 24 months.

13 percent will be out of credit card debt between 25 months and five years.

5 percent will be out of credit card debit between 5 and 10 years.

3 percent will be out of credit card debt in more than 10 years.

Even though they reduced their credit card debt, the proportion that used credit cards for basic expenses did not change in four years.  The Card Act had an impact because they didn’t pay as high fees. The top reasons for low credit scores were late credit card payments, unpaid medical bills or debt, heavy use of credit lines and late payments on utility bills.