Using credit cards and promptly paying off monthly balances is often touted as a smart and easy way to boost one’s credit score. But life isn’t that simple. A spouse may lose his or her job, a child’s illness may require an unplanned trip to the ER or a furnace could break down in the middle of January. Many middle-class American families simply don’t have sufficient savings to account for these types of unexpected financial hits.
While some like to reason that individuals facing overwhelming amounts of credit card debt are irresponsible, this simply isn’t true. Debt does not discriminate and impacts individuals and families that are financially responsible but, through no fault of their own, have fallen on hard times.
This belief is further explored in a recent study by Amy Traub, a senior policy analyst at Demos. For the study, Traub examined the personal and financial lives of members of nearly 2,000 U.S. households. Her findings identify key factors that, when experienced, quickly lead individuals to amass large amounts of credit card debt.
For example, U.S. households where a working individual was out of work for at least two months during the last three years are 14 times more likely to have credit card debt. Additionally, homeowners hit hard by the housing crash and now have negative equity in their homes are nearly 25 percent more likely to carry credit card debt.
The study also identified a major link between households with and without health insurance coverage. Households where family members were without health insurance for a period of time during the last three years were 20 percent more likely to have been forced to rely upon credit cards.
Even in cases where an individual has health insurance coverage, premiums, deductibles and unexpected out-of-pocket costs can place an additional financial burden on those already dealing with credit card debt. While the Affordable Care Act goes a long way to provide health insurance coverage to millions of uninsured Americans, there are still costs that many who have signed up for coverage under the ACA can’t anticipate and won’t be able to afford.
The study provides hard numbers and statistics related to common problems and situations that force many middle-class families into debt. For individuals who feel trapped in a never-ending cycle of credit card debt, Chapter 7 and Chapter 13 bankruptcy may be the solution.
Source: The Huffington Post, “What Drives Credit Card Debt?,” Amy Traub, May 1, 2014
Demos, “The Debt Disparity,” Amy Traub, 2014