Credit card debt tops $1 trillion, trapping even six-figure earners | Hacker News Reader

Credit card debt tops $1 trillion, trapping even six-figure earners

washingtonpost.com

35 pointsjyunwai65 comments

> Overall, nearly half (47 percent) of credit cardholders have revolving debt, meaning they don’t pay off their balance in full.

Does this mean 53% of those do pay off the balance in full each month? It'd be interesting to know what amount of that $1T is actually at 0% interest either due to introductory periods or being paid off in grace period. Depending on the answer to that, it may not be as eye popping because it shows the credit card is just being used as a more convenient form of payment, not as a debt mechanism.

Anecdotal, but I use 5 credit cards as a convenient form of payment, not as a debt mechanism. I use credit cards primarily for their cash back rewards. For every transaction I make, I try to find a deal in one of the credit cards I already have.

I wonder if something like a 0% APR Macbook purchase would appear against this statistic. I pay off my credit card every month but periodically lean on 0% situations out of convenience.

With the rise of "Finance your small purchase!" on most eCommerce platforms it must really muddy the data.

I buy with 0%APR whenever offered because i let them eat the inflation on the purchase, and instead I earn 4.5% on the cash.

Same. I have a $5k or so balance on my Apple Card, but all of it is 0% APR purchases of Apple stuff that I pay off every month.

I wonder how much of this is just due to education. I know several people who make good money, but carry over absurd amounts on their cards each month, losing hundreds of dollars.

These same people have tens of thousands, probably more, in their savings. But for some reason they can't bring themselves to pulling a chunk of their savings out and zero-ing the debt.

I think they were taught that savings should only go up, but don't realize they're being totally fleeced by 20% interest rates.

Or another pattern, which I presume CC companies bank on : People forget to pay in the grace window and hence get charged _some_ interest, and often get into a pattern where they pay off the wrong debts first etc.

So they're earning upto 4.5% on their savings, and then paying out like 20-25% on the debt.

Is that why there are a seemingly endless number of cards with their own stupid perks? It's a ruse so that people are more likely to forget?

I think there's just a statistically reliable number of people who will carry X balance at Y interest rate, and card companies use perks as product differentiation so they can attract more users. If the perks somehow get even more people to ignore their balances, that's just a bonus. At the end of the day the card companies are competing against each other.

And credit card companies make money on usage -- they charge the retailer something like 3% on purchases meaning they make money on the transaction volume regardless of carried balance.

The article makes a mere side note of the fact they also count revolving debt, i.e. what happens if you pay for groceries on a credit card and then pay off the amount in full every month.

Right. We pay for (nearly) everything using a CC, but we pay it off at the end of the month. We _never_ carry CC debt.

It would be interesting to have this data broken down more.

Same here. More than half our household's income goes on to a credit card, and right off again within a month.

Another one here. We routinely have a $4k monthly credit card statement, but it is paid off religiously every month. I suspect that the data for the story has to have some sort of "balance more than 60 days old" filter applied to it.

Nominal numbers aren't very meaningful. This number is affected by inflation just like prices. Household debt relative to GDP has been dropping pretty consistently since the financial crisis:

https://fred.stlouisfed.org/graph/?g=17HqN

I think GDP may not be the best representation to how well people are doing, but debt as a % of personal income seems to tell the same story: https://fred.stlouisfed.org/series/TDSP

Its a bit surprising given observational evidence. right now people seem to be spending at any cost and have run dry. now we are to the point every other weekend the bars/pubs are empty because people already spent their money, and the next week its packed because they got paid.

That looks to me like personal debt is almost where it was before the pandemic? Slightly lower, but will it last?

But that nearly straight line at 10% after 2008 is interesting. It seems like there must have been a big change in behavior?

It's not really meant to correlate tightly to personal wealth, but it's a proxy for inflation and at least loosely correlated with personal wealth.

Great point.

Here are two even better charts relevant to the subject:

[Consumer Loans: Credit Cards and Other Revolving Plans, All Commercial Banks]/GDP https://fred.stlouisfed.org/graph/?g=17Hsu

[Consumer Loans: Credit Cards and Other Revolving Plans, All Commercial Banks]/ ([Total Households] * [Real Median Household Income in the United States]) https://fred.stlouisfed.org/graph/?g=17Hsf (units adjusted)

Consumer loans jumped after financial crisis and peaked 2018.

Currently it’s affected a lot by interest rates. It’s very difficult to pay back a credit card that jumped up to a 29.99% APR.

Wow that's surprising given that new cars and houses are so much more pricey these days. I guess the average person is earning a lot more than in 2008.

Or homeownership is being consolidated away from the average person, thus not being included in debt.

Lots of people refinanced at a low rate in 2021 (at pre-2021 prices) and are not buying new cars... those people are doing just fine. Given the fact that the housing market is frozen, there's a lot more of them than there are people who bought in the last couple of years. This drags the average down.

There's a bifurcation, with some people (mostly homeowners who owned pre-2020) getting a giant handout from the government (record low interest rates, ability to refinance, etc - due to the FED buying mortgage backed securities en masse), and the rest of the people getting shafted.

Real wages adjusted for inflation are up since 2008, but sharply down since 2020.

https://fred.stlouisfed.org/series/LEU0252881600A

Isn’t GDP heavily correlated with the average person’s earnings?

My guess is that that post-financial crises the banks made it harder to give out loans which would decrease the amount of household debt over time as more households get declined on loans.

We are now in a world where UPS drivers have to make $170k a year to live.

That's 3x median income in one of the highest earning countries on earth. UPS drivers are paid well, but I don't think that's the minimum needed "to live".

Now that prices are up and salaries are somehow up, but (income) tax rates stay the same. Does that mean the government are taxing more for all of us?

Hmm.

Seems like if everything costs more, and you get paid more, the things the government purchases probably cost more too, so the tax rate should be the same right?

Tax brackets and standard deductions are indexed to inflation.

Does that debt include buy now pay laters like affirm / klarna?

Those probably have a tiny percentage of total debt. The biggest will be credit cards, mortgages, auto loans, home equity. I'm not really sure how it's calculated, but maybe based on the value of the secondary markets like how much investable consumer debt is being issued by major lenders. Assuming that pay-laters have a real financial institution behind them, they'd probably be part of the calculation.

When you pay with credit, their is typically a slight delay in when your loss is realized (e g. whenever your auto pay triggers).

It seems like this delay has huge effects some tangible some not. Dave Ramsey's preaching on only paying with cash certainly covers some of the psychological effects like:

- this is real money leaving my possession

- I can see how much I have left to spend immediately

I'm in my 30's and just got my first credit card (big mistake, don't do this). I learned personal finance from video games- if you don't have enough gold then you can't buy it!

Using a credit card responsibly is a good way to help build your credit. But you need a system – I can personally vouch for YNAB; I'm sure there are others – and you need to be disciplined and stick with the program.

> Using a credit card responsibly is a good way to help build your credit

Not where I'm from and honestly I've always kind of thought that was insane. If I were a money lender and two people came to me, with the same income and expenses, and one of them regularly used a credit card and one didn't I personally would expect the one who didn't use a credit card to be more fiscally responsible.

Sure credit cards are commonly used enough that I would ding the person with one much just because they used one, but it baffles me to think that "avoids using credit and lives entirely within their means" somehow makes you considered less likely to pay off a debt in the US. It seems so backwards

Thanks. I'm definitely not short on money but it was a shock when trying to get a mortgage! They basically said I don't exist without cards reporting.

I know several people in California that were essentially ruined financially, partly due to drastic cost of living increases, and partly due to long term credit card debt. That money is piled up in the financial system.

this credit card debt/spending = bad dogma that has become so common online, popularized by personal finance gurus, is so annoying and wrong.

credit cards can be used safely and responsibly, like any other financial tool

credit card interest is a lot but still less than payday loans

Best of all, credit cards offer superior buyer protection compared to other forms of payment. this alone is reason to use them. Also, lots of perks and other features. Debit cards are the big scam.

Many of the most famous personal finance gurus are basically teaching "personal finance for dummies", and so they take a very basic approach. They focus on getting people out of financial trouble, and in that context 'debt=bad' is a pretty handy rule of thumb. If they gave the general advice to chase that sweet 3% cash back, they could easily do more harm than good to their audience at large, since it might lead a large number of people (remember their target audience!) to take on debt that they end up carrying for some time. By sticking to the over-simplified "debt=bad" messaging, they give up some easy (small) gains to avoid some potential (and relatively big) costs.

Can high interest debt ever be good? I suppose if you're financing an expensive life or death medical procedure?

Services that can give you something right now and let you worry about it later can all be good if used properly but damaging if not.

So then the question to me is; should we let people do what they want to do and/or regulate the service?

Gambling is a good example of a heavy regulated service to prevent missuse, but of course not as severe as bad credit card spending.

I could say that gambling is harmless if you just limit you spending. But IMO this misses the bigger context.

I personally find credit cards very useful and never had my debt carried over. But my economy isn't exactly tight either.

> Debit cards are the big scam.

What.... how? I get a debit card for free and use it to pay for things in the same way I would cash. How exactly am I getting scammed?

The general rule of thumb is don't pay for consumables with debt. The longer you will use something, the more of an asset it is, and the more you can justify paying for it over its useful lifetime. You don't want to still be paying for today's lunch two months (or two years!) from now.

I really dislike services like klarna because I feel it tries to set people up to buy something they can't really afford.

But to counter myself, it let's people get things they can't afford. What's wrong with that? It's just that in exchange they are forced to follow some sort of strict "savings plan" for an extra fee.

If they had a strict savings plan from the beginning they could maybe already afford what they wanted, but this is a really judgemental attitude that ignores how some people are just different.

Why is paying with credit card the default in the US (at least that the impression I've got when visiting as a tourist) while here in Europe debit cards are the norm?

Credit cards often come with some %age cashback for certain kinds of purchases, and my understanding is that since the bank is technically the one paying, credit cards give you greater ability to dispute transactions.

Since while a bad business might be able to blow you off as just a random nobody, with a credit card you could drag the bank into the matter, which is a lot harder for a business to screw over.

Plenty of people in Europe have credit cards [1] so now I'm curious. Why do so many have them?

In the US where most people who are not paying cash do indeed use credit cards it is pretty normal to also have a debit card, but that is because the debit card is what you use to get cash at an ATM and so it makes sense to have one even if you never use it for payments.

[1] https://www.theglobaleconomy.com/rankings/people_with_credit...

I can make 6% off my groceries, 3% off gas, 3% off online shopping, and get all kinds of extra device protections warranties like theft and defects. Next I auto pay all my bills on my Delta Amex to get skymiles and $200 for flights a year plus free luggage. My gas company also has a deal with Delta so I get double points.

My wife expenses all her sales based expenses on her card at gets 2% or up to 3% for Restaurants.

This month I am cashing in about $1000 cash back I’ve accumulated in the past ~9 months. Putting it towards a new MacBook Pro.

Fraud protections are better with credit cards. Also you have a chance to dispute fradulent charges before your money is gone.

And it's only going to get worse as businesses shift away from taking anything other than the promises of third party rent seeking corps to pay for items. In the USA this is supposed to be illegal, ie, places have to accept cash for debts. But the solution many businesses have already found is to simply not take orders unless you swipe your card first. Pretty soon you won't be able to buy food or other neccessities without using a credit card.

> Pretty soon you won't be able to buy food or other neccessities without using a credit card.

In the US, this is FUD. There may be isolated instances of this happening which makes everyone spread doomsday news, but I really don't see this happening at every single place in the US within the next 20+ years, which falls out of your 'pretty soon' estimation.

Sure, there'll be dollar stores and the like. But already I bet you can't find a food truck that'll still accept cash. Nearly all of them require swiping a card before they'll even acknowledge you. I've run into many physical location restaraunts that do this too. Not most but it's a growing trend even here in the low population density midwest.

But already I bet you can't find a food truck that'll still accept cash.

You'd lose that bet in a big way. I'll take my winnings in cash, thank you very much.

Dude, we know you're being hyperbolic.

No company refuses to acknowledge you before you swipe a card. Hell, you can't swipe a card until an amount is provided with only a few exceptions (gas pumps).

No food truck do you walk up to, swipe your card, and then give your order.

Have you tried paying cash at a food truck recently?

I've yet to find one that doesn't accept cash, even in a major US city close to tech campuses. With the exception of a few small restaurants, the local self-operated car wash that kept getting robbed after hours, and a few farmer's markets (usually also at incredibly inconvenient times), I've yet to find a place that doesn't take cash. I've been to multiple restaurants in the past month that only accept cash, though.

Huh. Maybe the twin cities region of minnesota is just terrible in this regard? I really thought it was like this everywhere but all these comments are pretty convincing. I guess it's just locally bad.

> I bet

How much?

Not quite. "Selling you something" and "satisfying a debt owed" are not the same thing. A sales transaction is not the same thing as a debt.

It is perfectly legal for a counterparty to decline to enter into a sales transaction with you because they don't like your proposed payment terms. They are not required to accept cash (or anything else that they don't like.) That is not satisfaction of a debt owed; no debt has been created, because they refuse to give you anything in the first place.

The "legal tender for all debts" part means that _if you already owe someone money_ for some reason, and you offer them cash, they cannot refuse the cash and then pursue legal action against you for not paying the debt. The court must rule that your offer of cash is sufficient to satisfy the debt.

Debit cards exist, and I see no push against people using them in the US. If anything, everyone is being encouraged to have one.

"six-figure earners", like UPS drivers.

Not sure I understand your comment. Are you implying UPS drivers shouldn't make 6 figures?

I think the implication is that "six figures" ain't what it used to be. Even blue collar delivery drivers are making six figures now. So I take it the complaint is with the headline: "...even six-figure earners". The writer probably wants that to translate to "even doctors and lawyers!", but forgot that candy bars aren't $0.25 anymore, either.

EDIT: though OP's linked comment indicates that my guess was wrong. Meh, my point stands: six figures ain't the "professional class" salary it used to be.

like having a million dollars. it's not as much as it sounds , and it encompasses a huge range. $1 million hell of a lot smaller than $999 million yet both a million.

I've commented on the original thread: https://news.ycombinator.com/item?id=37062876

Reply on news.ycombinator.com