Debt and Basic Expenses

Are Americans using their credit to pay for basic living expenses? That is the suggestion of a report titled “The Plastic Safety Net.” In it, the public interest group Demos documented the debt situation for lower and middle income households across the United States.

The study found:

· One-third of these households used credit cards to pay for items such as rent, mortgage payment, groceries, utilities or insurance for five of the last 12 months. These payments were the best indicator of “debt-stress” in a household.
· Seventy-five percent of these households used credit cards as a “safety net” for car repairs, house repairs, layoff or job loss, money given or loaned to relatives, college expenses or starting or running a business.
· Half of households reported having medical expenses as part of the credit card debt, averaging $2,194.

The study also indicated that Americans had used home equity to pay off the debt. When home values took a dive, those families didn’t have much to fall back on. 

Indebted households use tax refunds and work extra hours to reduce debt. They have used $14,344 on average in home equity to pay the bills.

"American families are facing financial hardship not experienced for generations, and we've commissioned these surveys to tell us precisely why households are turning to credit cards so often" says Tamara Draut, Vice President of Policy and Programs at Demos and co-author of the report. "The results are clear: wages have stagnated while medical and housing costs have skyrocketed, and if confronted with a layoff or health emergency there are few, if any, personal or public safety nets adequate enough to help in a crisis. Households are turning to high-cost credit cards to keep afloat."

"The Plastic Safety Net" also reports that Americans are increasingly relying on credit cards to pay for essentials as wages no longer cover expenses.