Report: More Americans go into debt to make ends meet

For many people, the ability to borrow money serves as a key mechanism for expanding opportunity. Most people would be unable to pursue a post-secondary education, own a home or start a business without drawing on funds beyond their regular income.

According to a new report, however, many households are taking on debt just to make ends meet. Forty percent of households surveyed used credit cards to pay for basic living expenses in the past year because they did not have enough money in their checking or savings accounts.

The report, released by the research and advocacy organization Demos, relies on data from its 2012 survey on credit card debt of low- and middle-income households. The research builds on surveys in 2005 and 2008.

Even though average credit card debt among low- and middle-income households has dropped since 2008, people in this demographic continue to spend a sizable portion of their budgets on credit card payments. Nearly one-third carry balances higher than the $7,145 average, with 20 percent reporting more than $10,000 in credit card debt.

Older Americans have the highest average balances of any group, with those 65 and over holding $9,283 in credit card debt. The financial crisis hit household savings hard throughout 2008 and 2009, reducing Americans' ability to have a healthy and financially secure retirement, the Bell's ninth Gateway to Opportunity.

The report notes that all this borrowing comes at a cost. More than a quarter of indebted households surveyed are paying an annual percentage rate (APR) above 20 percent. Furthermore, high interest rates disproportionately affect people of color. While 25 percent of whites report an APR over 20 percent, 33 percent of African-Americans and 34 percent of Latinos are paying these higher rates. Also concerning is that people of color were substantially more likely than whites to deal with unexpected expenses through non-traditional forms of credit like car-title loans, pawnshops or payday lenders.

Medical debt is a major cause of credit card debt for low- and middle-income households, according to the report. Nearly half of all indebted households (47 percent) carried medical debt on their credit cards. Medical debt caused one-half of households to skip treatment, not fill a prescription or not see a doctor when necessary.

The reliance on credit card debt to meet basic needs carries with it consequences that extend beyond high interest rates and mounting fees. The expanding use of credit histories by insurance companies, landlords, employers and utilities means that when debt spirals out of control, other areas of people's economic lives are affected as well. Mindful of this fact, we at the Bell supported legislation during the 2012 legislative session that would have limited the use of credit information in employment decisions.

The report concludes by hailing the extent to which recent federal legislation has brought greater transparency and accountability to the credit card industry, and calling for additional regulation to ensure greater borrower security and fairness in bankruptcy proceedings.

– Alec Arellano