Credit Card Debt Rising

Rising Credit Card Debt

Recently CardHub.com ran an article titled "2016's Cities with the Highest & Lowest Credit Card Debts" (perhaps a bit of a misnomer since it was based on figures from September 2015).

Upon its conclusion, they posed four questions to field experts, which are available on the above link.  I am not an expert myself, but I found the questions especially intriguing, so since this is my blog, I took it upon myself to entertain each of the questions before reading any of the expert's responses.

What daily behaviors lead people to amass credit-card debt? It may be redundant, but the daily habits themselves contribute to amassing credit card debt more than most people may realize.  For individuals serious about tackling credit card debt, they need to stop accruing balances and pay off what is there.  Just like starting a diet where you need to monitor everything single you eat in a day, including the smallest snacks, people need to monitor every single thing they buy in a day, including the smallest items.  Being mindful of daily spending habits is an important step.  Simply changing some financial habits is as counter-productive as snacking between meals while on a diet.  It is an improvement, but the person may question if it is worthwhile to pursue because they’re not getting the full benefits.

What is the biggest mistake people make when managing credit-card debt? Thankfully I cannot speak for myself here, but I suspect people trying to eliminate their credit card debt underestimate how many factors are working against them.  For example, the minimum balance due is not there for the consumer’s benefit.  Paying just the minimum balance is not an efficient means of managing credit card debt.  Although it will eventually pay off the loan, the time frame involved is incredibly discouraging.

How does the growth of credit-card debt affect the economy? For years, I misunderstood the direct correlation until I heard it in the most simplistic terms.  Once the debts are due, there is a ripple effect.  Loans are harder to come by, and payments are needed now because others need to make their own payments with the amount due.  So people sell their assets (e.g. stocks) in order to make their payments, and when there are substantially more sellers than buyers in the market, stock prices can decrease in dramatic fashion.  Unfortunately, when that happens, even more people sell their stocks to prevent them from falling further.

What role, if any, should government play in incentivizing and encouraging people to maintain low debt-to-income ratios (e.g., through tax incentives)? I am not sure, but having healthy credit is truly its own reward.  If lower interest rates, peace of mind and/or financial security are not enough motivation, then I cannot see where other incentives would change the behavior for the majority of circumstances.