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Many Americans charge wisely, but more carry deeper debt

And you thought all this election stuff was divisive.

Check out the chasm that exists among credit card users in America. On one side there's the no-worries, no-interest people who pay off their cards every month like clockwork. On the other side you'll find the "let it ride" crowd who carry balances, month after month after month.

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It's a great American divide. And this one can't be blamed on anyone in the state of Florida.

Convenience vs. compulsion
About 40 percent of credit card users pay off their cards each month. The remaining 60 percent carry balances. This split in credit-spending patterns has been happening for years, and the gap seems to be widening.

There's evidence that folks carrying balances are letting them pile up more and more. The average credit card debt for Americans who revolve balances has gone up by nearly a third in five years, from $4,230 in 1995 to $5,610 in 2000, according to statistics gathered by the Credit Research Center at Georgetown University and TransUnion.

Buoyed by a booming economy, many Americans have adopted a "spend now, pay sometime later" philosophy. Industry analysts call these folks "revolvers."

It doesn't hurt that credit cards are accepted just about anywhere on the planet.

"Credit cards have become so commonplace and used in practically every retail business that people say, 'Hey, why not? I'll just use the card,'" says James Chessen, chief economist at the American Bankers Association.

The economic good times are making lots and lots of people say, "Hey, why not?"

"The times have been good for so long. People are incredibly optimistic. They have this glowing outlook about their own financial prospects so it makes them willing to take on these obligations," says Michael Staten, director of the Credit Research Center at Georgetown University.

"They've certainly become less cautious about the way they use debt. Optimism will do that."

But much of the card debt in America can't be attributed to good-time spending. Some Americans reach for credit cards because they have to -- not because they want to. Credit cards help them stretch an already strained budget through another month. Not too many of these people are having "fun."

Down in the valley of debt
There's evidence that people living paycheck to paycheck are closer to the edge than ever, saddled by heavy credit card balances that are creeping higher and higher. Recent rate hikes by the Fed have made things even worse.

"The rate hikes by the Fed appear to have affected some consumers on the periphery by increasing the cost of their monthly debt obligations," Chessen says. "Marginal borrowers are starting to juggle payments."

So even though the number of delinquent credit card bills -- bills 30 days or more overdue -- dipped to 2.99 percent of all accounts in the second quarter of 2000 from 3.28 percent in the first quarter, there's little to celebrate.

Folks who are behind on bills are struggling more than ever. Not only has the cost of credit gone up, but credit card companies are bolstering profits through heavy penalty fees and aggressive collection practices.

"Credit card issuers tend to be more aggressive after 30 days in collecting payments," Chessen says. "This is a deliberate did-not-pay."

Using the system
At the other end of the spectrum are people who've never paid a dime of interest and who use credit cards for the convenience and to rack up rewards such as air miles. Industry analysts call these folks "convenience users." They spend freely with the cards, as well, but they always have enough money to pay them off.

Some consumers are occasional revolvers. They typically pay their credit card bills each month but aren't afraid to carry a balance from time to time so they can buy a big item that they really want. Once the item is paid off, they go back to being a convenience user.

But other convenience users slide down into the revolving debt category because of an accident, illness or loss of a job.

"You've got people who've gone from being convenience users to revolvers because of circumstances beyond their control," says Robert Manning, author of Credit Card Nation: The Social Consequences of America's Addiction to Credit.

It can take months, even years, for people to climb out of debt and get their financial lives back in order. That's why consumer experts preach the importance of having an emergency fund -- three to six months living expenses -- stashed away somewhere. Unexpected setbacks swoop into everyone's life at one time or another. You might as well be prepared.

Other financial headaches you can see coming. For example, there's no rule that any of us have to bust our budgets on holiday gifts. These types of setbacks can be minimized with some quick planning.

"The bills come in January and February," Chessen says. "You don't want to wake up with financial frostbite."


-- Posted: Dec. 4, 2000




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