Gail MarksJarvis: Card debt still choking low, middle incomes

Americans have been successful at getting some of their debts off their backs, but many still have a long way to go.

Low- and middle-income people are finding an escape difficult as they pay interest on top of interest. Forty percent have turned to their credit cards to cover basic living expenses such as rent, mortgage bills, groceries and utilities, according to a national survey by think tank Demos. Those surveyed were low- and middle-income people who carried a balance on their credit cards for at least three months.

Credit cards have been a safety net as people have lost jobs since 2008 and faced the pressure of high gas prices, said Amy Traub, senior policy analyst for Demos.

The 2008 financial crisis was a brutal wake-up call for many, as banks abruptly shut down cards and cut debt limits at the same time companies were tossing millions out of work. About 39 percent of households surveyed by Demos experienced some cuts in their credit, and about half of those reduced spending as a result. But 28 percent have taken on more debt in the past year.

Now, the average debt on cards held by low- and middle-income people is $7,145, compared with $9,887 in 2008, according to the survey. Fifty-one percent said cost-of-living expenses contributed most to their current card debt.

Some bought dubious debt-protection products, which suspend payments on obligations during times of hardship. A Government Accountability Office study calculated $2.4 billion in those products in 2009.

The greatest debt burdens are being carried by older Americans, with people 65 and over averaging $9,283 in credit card debt, according to the survey. Demos attributes problems to the financial crisis, which slashed household savings in 2008 and 2009 and left individuals insecure at retirement. Other analyses have suggested that seniors, who tend to rely on bonds, CDs and savings accounts, have struggled to cover living expenses as Federal Reserve policies have left interest rates near zero since the financial crisis.

Medical bills have also contributed to problems for seniors and others, Demos said. Nearly half of households carried debt from medical bills on their credit cards, with the average expense at $1,678.

Low- to middle-income people 25 to 34 cut the debt they had in 2008 in half but still owe more than $5,000 on average, the survey said. People 18 to 24 have the lowest obligations, at $2,982 on average. Still, people 18 to 34 were the most likely to increase their debt in the past three years.

About 35 percent of those carrying debt on their cards said a member of their household had been trying unsuccessfully to get a full-time job.

Other research shows young Americans were the most likely to be unemployed during the recession, while older workers experienced the most difficulty getting rehired. According to research by the Urban Institute, 1 in 4 between 25 and 34 lost their jobs in 2008-09. Most found jobs within six months but settled on average for pay cuts of 11 percent. In the 50 to 61 age group, only 1 in 6 lost jobs, but after six months most were still looking for work. Those finding new jobs settled for a 23 percent pay cut, on average.

According to Demos, 49 percent of low- and middle-income Americans dug into their savings in the last year to pay unforeseen expenses. But 43 percent say they had no regular savings, and 72 percent of that group had no money left after paying their bills.

People carrying charges month to month pay interest repeatedly for old purchases. Those on solid footing now except for oppressive debt payments can do something about it. At LearnVest.com, you can see using the free "get out of debt bootcamp" tool that with $7,000 in debt and a 15 percent interest rate, you will pay almost $10,000 to get rid of your debt in five years. That difference could have covered a five-day Hawaiian vacation or three months of $1,000 rent.

Those on solid footing now except for oppressive debt payments can do something about it. There's no need to pay for help, and firms that promise to do so can get you deeper in trouble. Try these tools for paying off debt: http://www.tinyurl.com/debtplannertool and http://debtcoach.bills.com/start.

ABOUT THE WRITER

Gail MarksJarvis is a personal finance columnist for the Chicago Tribune and author of "Saving for Retirement Without Living Like a Pauper or Winning the Lottery." Readers may send her email at gmarksjarvis@tribune.com.

dia frampton zook eric decker eric decker dallas cowboys cheerleaders leftover turkey recipes leftover turkey recipes