Stephen Rose: The Hype About Credit Card Debt

CreditCards.com recently released a report saying that the average American household held $9,300 in credit card debt in 2004. This is a big number that would cause great pain for most families if it were anywhere near the real number. There already have been a few comments arguing that this number is thrown off by a few families having huge amounts of debt (see MSN financial Columnist Liz Pulliam Wesston and posts on Credit Slips and The Consumerists.

But this is not the main reason that the $9,300 is a bad number. * the mean debt of all households was below $2,500 because of the absence of debt of over half of all households. There is a good explanation of why these two numbers differ even though they are both derived from information from the Federal Reserve Board. First, the normal definition of credit card debt is the amount of debt held after paying off one’s monthly bills.

The $9,300 figure used by CreditCards.com is based on the Federal Reserve’s tabulations from banks on daily outstanding sums; this figure is not the same as the amount of debt remaining after the monthly payments. Second, while corporate credit cards are mostly not included in the debt total compiled by the Fed, the credit card debts of the self-employed and small businesses are often included.

Do these two factors explain the enormous gap between the two data sources? Probably, but we don’t have a definitive answer because there are no published studies on the issue. However, in private communication with the lead researcher in charge of the SCF, I discovered that a researcher had indeed addressed this question using a large, anonymous sample of bank credit card receipts.

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