If you step into an elevator with four other occupants, chances are two people are worried about debt. Are you one of them?

The results of Bankrate’s latest survey show that two out of five Americans are preoccupied with worrisome debt. Over half of us (61 percent) carry some debt, excluding mortgages. Nearly two-thirds (64 percent) who do carry debt say it’s cause for concern.

Our attitudes about savings and debt are somewhat contradictory. While almost all Americans believe that debt can be controlled by disciplined saving and spending (91 percent), nearly three-quarters (72 percent) also believe that debt is a part of modern life and difficult to avoid.

Bankrate commissioned GfK Roper to conduct a random survey of Americans’ attitudes about savings and non-mortgage debt as part of our focus on tackling debt in this segment of the Financial Literacy series.

Americans’ mixed feelings

The cause of debt is up in the air: 66 percent of Americans say debt is often the result of unfortunate circumstances beyond a person’s control, while 60 percent attribute it to human error, saying debt is usually the result of bad decisions.

Attitudes about debt
Income
Percent who agree with each of the following statements.
Base: Total respondents

Total Have debt Do not have Earn less than $50K Earn $50K+
Debt can be controlled through disciplined spending and saving 91% 94% 85% 87% 96%
Carrying some debt is part of modern life and is tough for anyone to avoid 72% 80% 60% 73% 74%
Debt often happens due to unfortunate circumstances beyond anyone’s control 66% 69% 62% 74% 60%
Debt usually results from bad decisions 60% 56% 65% 67% 52%

Veteran consumer credit expert Gerri Detweiler says the results to this set of questions are interesting because they reveal our mixed feelings about debt.

— Posted: Feb. 25, 2008

“People are conflicted: ‘Is it because of choices or circumstances?'” she says. “People think that credit problems are something that happen to somebody else because that person didn’t manage their money well. But for most of the consumers that I talk to, it’s a combination of financial habits and life events that usually put them over the edge. They realize they could have done some things better, but usually there’s a catalyst behind the events, whether it’s medical bills or divorce, change of income — any of those things.”

Influential income factors

Americans’ opinions on the causes of debt differ somewhat by income, with higher-income respondents feeling more in control of their finances. Almost all of those earning $50,000 or more per year agree that debt can be controlled through disciplined spending or savings (96 percent), compared to a still-robust 87 percent of those who earn less than $50,000.



It’s a combination of financial habits and life events that usually put them over the edge.

Attitudes among those earning less than $50,000 appear more conflicted. Lower-wage earners are more likely to agree that debt often happens due to circumstances beyond someone’s control (74 percent vs. 60 percent for those earning $50,000-plus). Yet personal responsibility does play a role: Lower-wage earners agree that debt usually results from bad decisions (67 percent vs. 52 percent for higher earners).

Debtors vs. non-debtors

Nearly two-thirds of non-debtors say debt usually results from bad decisions, compared to 56 percent for those who carry debt. Once in debt, people seem to accept their circumstances. Americans with debt are much more likely to agree that debt is just a part of everyday life (80 percent vs. 60 percent for non-debtors).

Acceptance of debt isn’t an attitude that serves people well. While Bankrate’s study shows debt’s pervasiveness at all age levels, finance professor Lewis Mandell of the University of Buffalo was surprised to see debt among 67 percent of those in the 50 to 64 age category — a time when it is traditionally easier to save. “If they’re going to have any hope of surviving in retirement, I would have expected those debt levels to have gone down much more substantially, but they don’t drop off very much,” he says.

He adds that the phrasing of the questions can lead to affirmative responses: “If you ask a platitude, people will agree with it — ‘I should be saving more money,’ that sort of thing,” he says. “So that didn’t surprise me very much.”

— Posted: Feb. 25, 2008

“For example, let’s begin with ‘Debt can be controlled through disciplined spending.’ That’s a motherhood-apple pie statement. You would expect most people to say yes. However, the fact that most people (72 percent) agree with ‘debt is difficult to avoid’ — I think that is an interesting result,” says Mandell.

Debt types

Among the majority of Americans (61 percent) who carry some sort of debt from month to month outside of mortgages, credit cards are the most frequently cited form of debt (45 percent). One-third have car loans; one-fifth have home equity loans or lines of credit, and 16 percent carry student loans. The higher the income level, the higher the tendency to hold debt. For example, 75 percent of those with annual incomes of at least $75,000 regularly carry debt month-to-month as opposed to only 36 percent of those with annual incomes under $20,000.

Types of debt we owe
Income
Most people carry some sort of debt from month to month. Do you currently owe money on any of the following types of accounts?
Base: Total respondents

Total Earn less than $50K Earn $50K+
Any (net) 61% 52% 77%
Credit cards 45% 36% 59%
Auto or other type of vehicle loan 33% 24% 48%
Home equity loan or line of credit 20% 13% 31%
Student loans 16% 13% 20%
None 38% 48% 23%
Don’t know 1% 1%

Detweiler is encouraged that nearly 40 percent of consumers are free from non-mortgage debt. But Howard Dvorkin, founder of Consolidated Credit Counseling Services, focuses more on the disproportionate number of people who owe money on credit cards compared to other loans. 

“This shows the American addiction to credit cards and, often, the use of money that they do not have at the time of purchases,” he says.  

— Posted: Feb. 25, 2008

Comfort level

More than half of Americans who carry monthly debt (54 percent) admit they worry about it somewhat, but say they can manage it. One in 10 Americans who carry monthly debt, however, are really worried and are unsure how they are going to pay it all back. About one-third (35 percent) say they don’t worry at all about the amount of debt they carry each month.

Our debt-tolerance level
Gender Income
Which of the following statements best describes how you view the amount of debt you carry month to month?
Base: Carry debt from month to month

Total Male Female Earn less than $50K Earn $50K+
You don’t worry at all about the amount of debt you carry month to month 35% 40% 30% 29% 40%
You worry somewhat about the amount of debt you carry month to month but you feel able to manage it 54% 52% 56% 53% 55%
You are really worried about the amount of debt you carry month to month, and are not sure how you are going to pay it all 10% 7% 13% 17% 5%
Refused 1% 1% 1% 1%

“I was very surprised that only 10 percent of consumers said they were really worried about their debt,” says Detweiler. “We’re heading into the most difficult year credit-wise that I’ve seen in the 21 years that I’ve been looking at this industry. So, I’m surprised that more consumers aren’t more concerned about the debt they’re carrying and how they’ll pay it back.”

While those earning less than $50,000 are more than three times as likely to say they are not sure how they will pay for it all (17 percent vs. 5 percent), higher-income folks may also have cause for added concern.



I was very surprised that only 10 percent of consumers said they were really worried about their debt.

“I’m hearing a lot more from consumers who have been able to maintain great credit all their lives,” says Detweiler, “who make good or even excellent incomes, but now are caught in the mortgage crunch. And between that and the other debt that they’re carrying and concerns over their income dropping, they’re getting very nervous that everything’s going to cave in this year. In terms of the type of consumers I’m hearing from, it’s more the higher-income consumers who have done fine up until now and suddenly it’s catching up with them.”

— Posted: Feb. 25, 2008

Men are much more likely than women to say they don’t worry about the amount of debt they carry (40 percent vs. 30 percent). Similar results are reflected for income: Americans earning $50,000 or more are significantly more likely than those earning less to say they don’t worry at all about their monthly debt (40 percent vs. 29 percent).



25 million working-class households are dealing with unmanageable debt load.

Dvorkin warns that consumers should drop their nonchalance and prepare for the changing economic climate. “With the impending recession and inflation rising, I warn consumers to take a hard look at what they owe and to pay off as much as possible. Most people handle their debt fine until an unexpected event happens, such as a layoff, illness or death in the family.”

Consumer debt educator Christopher Viale says some groups have greater cause for concern.

Working class individuals, who comprise 35 percent of the overall American population, are having increased difficulties managing their credit responsibilities. “For instance, close to 25 million working-class households are dealing with unmanageable debt load,” Viale says. “Families are behind on their credit card payments, receiving late fees and are over their spending limit. These individuals also have little, if any, savings, and are very concerned about the future of the U.S. economy.”

Says Detweiler: “There’s only so much you can do, so really worrying isn’t going to help unless it makes you take action.”

Unbelievably knowledgeable

The very confident responses to a set of debt-knowledge questions are met by either surprise or skepticism by all of our experts:

85 percent know the interest rate on each of their debts.

“When you ask people ‘do you know the rate on your debts,’ of course they’re going to say ‘yes’ because they would appear to be ignorant if they said no,” says Mandell.

Detweiler suggests that if asked to provide proof, respondent optimism might prove misplaced. “My guess is that if you asked them to itemize it, then show you their statements, there would be a number of people who had underestimated or who had the interest rate wrong and be surprised by it.”

“I think about this and write about this all the time, and I’m afraid I don’t really know what the interest rate is on many of my debts,” says Mandell. “I haven’t any idea what interest rate is charged on my credit cards, maybe because I try not to pay any interest, but still. If I had an auto loan, chances are very small that I would know what it is because most people don’t even shop for loans of that type.”

— Posted: Feb. 25, 2008

87 percent know the total amount on each of their debts.

“Part of it may be that you’re talking to a broad range of consumers who might have one car loan and one credit card,” explains Detweiler. “In that case it’s pretty easy to keep track. When consumers contact me, they usually have eight or nine credit cards and multiple other loans. The more you have to juggle, the more difficult it is to stay on top of the details.”

86 percent understand how interest and finance charges are calculated on what they owe.

Mandell admits it took him a couple days to figure out exactly how his credit cards calculate finance charges. “There are so many variants and the card companies change them so frequently that I would doubt that 1 percent of Americans really know how interest and finance charges are calculated on what they owe. It’s just so incredibly complicated,” he says.

Viale says that the level of knowledge reported in the survey is uncommon among those that he educates throughout the community. “Through our outreach, which includes all age groups and income levels,” he says, “our respondents indicated that only 10 percent knew the interest rates on their debt. Furthermore, of all our respondents, less than 5 percent knew how interest and finance charges were calculated. Almost none of the thousands of the people we have educated understand two-cycle billing.”

83 percent read contracts fully before signing up for a loan or credit card.

Mandell laughs off this result, suggesting that lips loosened by a few drinks among friends would tell a different tale. “Most of your friends won’t have read it. I would really doubt that 5 percent of people even read their mortgage and I doubt that very many people at all read their credit card — the credit card statements are almost indecipherable. That’s why when you ask statements of this type, I think that people want to appear smart and alert and do the right thing. Based on all the studies that I’ve done, it’s really not going to happen.”

He suggests that if questions had been prefaced with the statement, ‘Statistics show that very few people take the time to completely read through their loan agreements, do you?’ then only 5 percent would have said yes. “When you put it in a very open positive way, it’s like saying, ‘Do you treat your children well?’ Then everyone is going to say yes. Even in their own eyes, people want to appear more positive.”

“I just do not believe that 83 percent fully read all their contracts before they sign up for a credit card and I know why: It’s very difficult,” says Detweiler. “I believe that’s the before. After they get the cardholder terms in the mail, they don’t read that. The application is shorter than the actual contract.”

See the results of our savings poll

This national random-digit-dialed phone study of 1,014 adults 18 or older was conducted for Bankrate by GfK Roper Public Affairs & Media. The surveys were conducted from Feb. 8, 2008 through Feb. 10, 2008. The sample was weighted by demographic factors including age, gender, race, education and census region to ensure reliable and accurate representation of adults in U.S. households. The margin of error for the survey is +/- 3 percentage points. For full results and methodology, download this PDF.

— Posted: Feb. 25, 2008

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