The Walrus.biz

A Mountain of debt

I came across an article by Demos that talked about the increasing levels of debt incurred by Americans. It’s a sobering analysis of the trouble that many people face. Here are some of the findings:

• Between 1989 and 2006, Americans’ overall credit card debt grew by 315 percent
  from $211 billion to $876 billion (2006 dollars)
• Nearly six out of 10 households with credit cards revolved their balances in
  2004. The average amount of credit card debt among those households reached
  an all-time high of $5,219, an increase of 89 percent from $2,768 in 1989.
• From 2001 to 2006, homeowners cashed out $1.2 trillion in home equity, often
  in an effort to cope with mounting credit card debt and to cover basic living
  expenses.

What surprised me most about this article was the age group of people who are in debt. While 31-44 year olds carry the most amount of debt, the growth rates of credit card indebtedness increase with age. The common perception of those swimming in debt is the individuals who indulge in luxurious buying and exotic getaways. Times have changed. Rising health care costs have left an aging baby boomer population with no choice but to borrow money to meet needs. The problem gets worse when you consider that these same people took advantage of a real estate bubble to glean cash from equity in their home. The prices of homes are falling in many areas and credit card debt is consuming disposable income. This is a recipe for long-term stagnation or a short term and very damaging recession. Let’s hope we see neither.