Average Interest Rate On Credit Card Debt

The Tens Of Millions Of Forgotten Americans That The U.S. Economy Has Left Behind

The evidence that the middle class in America is dying continues to mount.  As you will see below, nearly half the country would be unable “to cover an unexpected $400 expense”, and about two-thirds of the population lives paycheck to paycheck at least part of the time.  Of course the economy has not been doing that well overall in recent years.  Barack Obama was the only president in all of U.S. history not to have a single year when the economy grew by at least 3 percent, and U.S. GDP growth during the first quarter of 2017 was an anemic 0.7 percent.  During the Obama era, it is true that wealthy enclaves in New York, northern California and Washington D.C. did thrive, but meanwhile most of the rest of the country has been left behind.

Today, there are approximately 205 million working age Americans, and close to half of them have no financial cushion whatsoever.  In fact, a new survey conducted by the Federal Reserve has found that 44 percent of Americans do not even have enough money “to cover an unexpected $400 expense”…

Nearly eight years into an economic recovery, nearly half of Americans didn’t have enough cash available to cover a $400 emergency. Specifically, the survey found that, in line with what the Fed had disclosed in previous years, 44% of respondents said they wouldn’t be able to cover an unexpected $400 expense like a car repair or medical bill, or would have to borrow money or sell something to meet it.

Not only that, the same survey discovered that 23 percent of U.S. adults will not be able to pay their bills this month…

Just as concerning were other findings from the study: just under one-fourth of adults, or 23%, are not able to pay all of their current month’s bills in full while 25% reported skipping medical treatments due to cost in the prior year. Additionally, 28% of adults who haven’t retired yet reported to being grossly unprepared, indicating they had no retirement savings or pension whatsoever.

But just because you can pay your bills does not mean that you are doing well.  Tens of millions of Americans barely scrape by from paycheck to paycheck each and every month.

In fact, a survey by CareerBuilder discovered that 75 percent of all Americans live paycheck to paycheck at least some of the time…

Three-quarters of Americans (75 percent) are living paycheck-to-paycheck to make ends meet, according to a survey from CareerBuilder. Thirty-eight percent of employees said they sometimes live paycheck-to-paycheck, 15 percent said they usually do and 23 percent said they always do. While making ends meet is a struggle for many post-recession, those with minimum wage jobs continue to be hit the hardest. Of workers who currently have a minimum wage job or have held one in the past, 66 percent said they couldn’t make ends meet and 50 percent said they had to work more than one job to make it work.

So please don’t be fooled into thinking that the U.S. economy is doing well because the stock market has been hitting new record highs.

The stock market was soaring just before the financial crisis of 2008 too, and we remember how that turned out.

The truth is that the long-term trends that have been eating away at the foundations of the U.S. economy continue to accelerate, and the real economy is in substantially worse shape this year than it was last year.

Just about everywhere you look, businesses are struggling and stores are shutting down.  Yes, there are a few wealthy enclaves where everything seems wonderful for the moment, but for most of the country it seems like the last recession never ended.

In a desperate attempt to stay afloat, a lot of families have been turning to debt to make ends meet.  U.S. household debt has just hit a brand new all-time record high of 12.7 trillion dollars, but we are starting to see an alarming rise in auto loan defaults and consumer bankruptcies.  This is precisely what we would expect to see if the U.S. economy was moving into another major recession.

In fact, we are seeing all sorts of signs that point to a major economic slowdown right now.  Just check out the following from Wolf Richter’s latest article…

Over the past five decades, each time commercial and industrial loan balances at US banks shrank or stalled as companies cut back or as banks tightened their lending standards in reaction to the economy they found themselves in, a recession was either already in progress or would start soon. There has been no exception since the 1960s. Last time this happened was during the Financial Crisis.

Now it’s happening again – with a 1990/91 recession twist.

Commercial and industrial loans outstanding fell to $2.095 trillion on May 10, according to the Fed’s Board of Governors weekly report on Friday. That’s down 4.5% from the peak on November 16, 2016. It’s below the level of outstanding C&I loans on October 19. And it marks the 30th week in a row of no growth in C&I loans.

Perhaps we will be very fortunate and break this pattern that has held up all the way back to the 1960s.

But I wouldn’t count on it.  Here is what Zero Hedge has to say about this alarming contraction in commercial and industrial loans…

Here’s the bottom line: unless there is a sharp rebound in loan growth in the next 3-6 months – whether due to greater demand or easier supply – this most accurate of leading economic indicators guarantees that a recession is now inevitable.

We are way overdue for a recession, the hard economic numbers are screaming that one is coming, and the financial markets are absolutely primed for a major crash.

As Americans, we tend to have such short memories.  Every time a new financial bubble starts forming, a lot of people out there start behaving as if it can last indefinitely.

But of course no financial bubble is going to last forever.  They all burst eventually, and now the biggest one in U.S. history is about to end in spectacular fashion.

Trump will get a lot of the blame since he is the current occupant of the White House, but the truth is that the conditions for the next crisis have been building up for many years, and the horrors that the U.S. economy is heading for were entirely predictable.

Drowning In Debt: 35 Percent Of All Americans Have Debt That Is At Least 180 Days Past Due

drowning-help-public-domainMore than a third of all Americans can’t pay their debts.  I don’t know about you, but to me that is a shocking figure.  As you will see below, 35 percent of the people living in this country have debt in collections.  When a debt is in  collections, it is at least 180 days past due.  And this is happening during the “economic recovery” that the mainstream media keeps touting, although the truth is that Barack Obama is going to be the only president in United States history to never have a single year when the economy grew by at least 3 percent.  But at least things are fairly stable for the moment, and if this many Americans are having trouble paying their bills right now, what are things going to look like when the economy becomes extremely unstable once again.

The 35 percent figure is a nugget that I discovered in a CNN article about Detroit that I was reading earlier today…

And the city’s troubles have left a mark on the financial stability of its residents in a big way, according to a new report from the Urban Institute.

About 66% of residents have debt in collections — meaning more than 180 days past due — at a median amount of $1,847. Across the U.S., 35% of Americans have debt in collections.

It is hard to believe that 66 percent of the residents of one of our largest cities could have debt in collections, but without a doubt the city of Detroit is a complete and utter economic wasteland at this point.

But to me, the 35 percent figure for the nation as a whole is a much greater concern.

And much of the debt that is in collections is credit card debt.

In the immediate aftermath of the last financial crisis, many Americans started getting out of debt, and that was a very good thing.

Unfortunately, that trend has completely reversed itself over the past few years, and now credit card balances are rising at a pace that is quite alarming…

Using data from the U.S. Census Bureau and the Federal Reserve, ValuePenguin found that the average credit card debt for households that carry a balance is a shocking $16,048 — a figure that has risen by 10% over the past three years. At the average variable credit card interest rate of 16.1%, this translates to nearly $2,600 in credit card interest alone. And many credit cards have interest rates much higher than the average.

Even scarier, consider that based on the average interest rate and a minimum payment of 1.5% of the balance, it would take nearly 14 years for the typical indebted household to pay off its existing credit card debt, at a staggering cost of more than $40,200. Keep in mind that this assumes no additional credit card debt is added to the tab along the way.

Those that have been there know exactly how it feels to be drowning in credit card debt.

You know, they don’t teach you about credit cards in high school or in college.  At least they didn’t in my day.  So once I got out into the “real world” and discovered the joy of instantly getting whatever I wanted with a credit card, I didn’t understand how painful it would be to pay that money back someday.

If you have credit card balances that are out of control, they can keep you up late into the night.  The worry and the fear can eat away at you like a cancer, and many people play a game of moving balances from one card to another in a desperate attempt to stay afloat.

Fortunately I learned my hard lessons at an early enough age to get things turned around.  Now I warn others about the danger of credit card debt through my writing, and my hope is that the things that I share on my websites are doing some good for others that may be struggling financially.

When you are deep in debt, it is exceedingly difficult to build up any wealth of your own.  This is one of the primary reasons why 69 percent of all Americans have less than $1,000 in savings today.

In essence, more than two-thirds of the country is living paycheck to paycheck, and that is a recipe for disaster when the next major economic downturn in the U.S. strikes.

Overall, household debt in America has now reached a grand total of 12.3 trillion dollars.  When you break that down, it comes to $38,557 for every man, woman and child in the entire nation.

So for a family of five, your share of that total would be $192,785.

And remember, that is just household debt.  That total does not include any form of business debt or any form of government debt.

We truly are a “buy now, pay later” society.  We were the wealthiest and most prosperous nation on the entire planet, and previous generations handed us the keys to the greatest economic machine in world history, but that wasn’t good enough for us.

We always had to have more, more, more – and now we have accumulated more debt than any society in the history of the globe.

It is inevitable that this giant debt bubble is going to burst.  Anyone with an ounce of common sense can see that.

What we experienced in 2008 was just a preview of the hard times that are coming.  The next recession is going to be even worse, and most economists are convinced that it will happen within the next four years no matter who is elected president in November.  The following comes from the Wall Street Journal via the Calculated Risk blog…

Economists in The Wall Street Journal’s latest monthly survey of economists put the odds of the next downturn happening within the next four years at nearly 60%.

Just like the last time around, millions of those that are “living on the edge” financially will fall out of the middle class and into poverty when they lose their jobs.

Hopefully most of you that have been reading my work for an extended period of time have already been getting out of debt and have been building up a financial cushion.

Sadly, most of the country continues to act as if they are living in a pre-2008 world, and the economic wake up call that is coming is going to be incredibly painful for those that thought they could get away with being exceedingly reckless financially.

Credit Card Companies Specifically Target Less Educated And Less Sophisticated Americans

Credit Cards - Public DomainThe big credit card companies don’t make much money off of those that pay their bills on time, and so they often specifically target less educated and less sophisticated consumers that don’t really understand the dangers of credit card debt.  The goal is to find people that will carry credit card balances from month to month, because that is where the real money can be made.  The average U.S. household that carries balances from month to month has approximately $15,310 in credit card debt right now.  At an average interest rate of about 15 percent, the profits pile up very quickly for the big credit card companies.  After all these years, so many of us still have not learned the truth about credit cards, and so credit card debt is absolutely crippling tens of millions of American families.

In 2015, the total amount of credit card debt in this country increased by a staggering 71 billion dollars.  In a previous article, I explained to my readers that American consumers accumulated more new credit card debt during the fourth quarter of 2015 than they did during the entire years of 2009, 2010 and 2011 combined.

Many analysts are forecasting that the total amount of credit card debt will surpass a trillion dollars by the end of 2016.  This is why there is such a crying need for financial education in this nation.  Millions upon millions of us are being taken for a ride, and as I mentioned above, the big credit card companies often target those of us that are the least sophisticated about financial matters.  The following comes from Bloomberg…

Credit-card companies need people to spend more than they can afford, but not so much that they default on their payments. So they could benefit from targeting individuals who are more likely to have cognitive failings. This is the dark side of behavioral finance.

Some new research by economists Antoinette Schoar of the Massachusetts Institute of Technology and Hong Ru of Nanyang Technological University claims to find exactly such a result. The authors use data from a private company that tracks credit-card offers. They find that less educated consumers — who are likely to be less financially sophisticated — are more frequently given offers that include back-loaded costs. Those are plans that start with low rates, but increase later, with extra-high over-limit and late-payment fees. In other words, those are likely to be the borrowers who make bad financial decisions — racking up debt and eventually paying much more in interest. Meanwhile, more educated households tend not to be offered these plans.

Do you understand what that is saying?

The large credit card companies want to find those of us that are the most vulnerable, because that is where their biggest profits can be made.

And of course most of us have gotten into trouble with credit card debt at some point.  They don’t teach us how to manage our finances in high school or in college, and so most of us are very financially naive when we first get out into the real world.  Card offers are being showered on our young people, and cash-strapped young adults can find it very easy to “buy now and pay later”…

Psychologically, it can be easier for people to pay using a credit card because no paper money is involved, Danford said. A Dun & Bradstreet study found that people spend an average of 12 to 18 percent more when using a credit card instead of cash.

“I think that’s one of the traps. It’s almost too easy to use a credit card,” Danford said. “You don’t have to think of the consequences.”

According to 2015 data from Experian, the average American had 2.24 credit cards, up from 2.18 in 2014.

Of all credit card users, what percentage do you think carries a balance from month to month?

30 percent?

40 percent?

Well, according to Time Magazine only 35 percent of those that use credit cards completely pay them off every single month.  That means that 65 percent of those that use credit cards do carry a balance…

Only 35% of credit card users don’t carry a balance–they pay off their bill every month, like you’re supposed to. They use credit cards for convenience, and perhaps to generate bonus points and rewards, not because they need to borrow. If you’re a member of this group, you’re known as a “convenience user.” (Go ahead and pat yourself on the back for not being on the hook for high interest rates, but don’t gloat.) The other, more typical credit card users are known as “revolvers” because they don’t pay off their bills in full so the debt revolves. To them, credit limit increases are essentially invitations to spend more. It’s unsettling: “for revolvers, a 10% increase in credit is followed by a 1.3 percent increase in debt within one quarter and a 9.99% increase in debt over the long term,” the study found.

Unfortunately for the big credit card companies and the overall U.S. economy, it appears that U.S. consumers are starting to get tapped out.

Retail sales fell 2.9 percent in April, and then they dropped by 3.9 percent in May.  As a result of these declining sales, corporate profits are suffering, and it is being projected that the final numbers for the second quarter of 2016 will show that corporate profits in the U.S. have now fallen for five quarters in a row.

That is not an “economic recovery”.  Rather, that is what normally happens at the beginning of a major recession.

And don’t expect this to turn around any time soon, because Americans just don’t have the kind of discretionary income that they once did.  The following comes from a New York Post article entitled “A staggering percentage of Americans are too poor to shop“…

Retailers have blamed the weather, slow job growth and millennials for their poor results this past year, but a new study claims that more than 20 percent of Americans are simply too poor to shop.

These 26 million Americans are juggling two to three jobs, earning just around $27,000 a year and supporting two to four children — and exist largely under the radar, according to America’s Research Group, which has been tracking consumer shopping trends since 1979.

So much of what is happening right now is very reminiscent of 2008.  There was an explosion of credit card debt just before that crash as well.

We should have learned some very hard lessons the last time around, but we didn’t, and so now the pain for American families will be even greater this time.

If you are in credit card debt at this moment, it would be wise to try to eliminate it as soon as you can, because you definitely don’t want to be drowning in debt when times get really, really hard.