There have been a couple of episodes of Simpsons where “credit card debt” was the subplot. Should give a good idea how “relatable” the experience it was even in the older days. Obviously I’m exaggerating, but you get the idea.
I can understand how someone right on the edge of disaster (and Homer was always on the edge) would get into debt, but those numbers would imply 2/3 of people are in what I would consider imminent financial collapse. Surely people couldn't exist in that state for lengthy periods of time. Right?
From talking to lots of working class friends, meaning, not white collar, yes - they are in a constant state of financial collapse.
I think people do not truly gauge just how poorly adjusted wages are and just how expensive everything is. A fast food meal is now anywhere from 15-20 dollars. That's about an hour of labor for many, many people.
To put into perspective, where I live a one-bedroom is gonna run you 1200 dollars a month minimum. And that's gonna be a sketchy one bedroom. At a wage of 20 dollars an hour and 35 hours a week, that's about 2800 dollars a month. So you can't afford a one bedroom, period. Bearing in mind, healthcare alone will eat a couple to a few hundred dollars a month. Food, another few hundred at least.
You can optimize, of course. Rent a house with three other people, eat only cheap cooked foods like beans, drive a beater. But it's gonna be a fierce financial struggle always. You get sick, you need surgery, your deductible is 7 grand - you're fucked. Fucked completely, and that's not counting the lost wages. Or the 300 dollars a month you've burned on a healthcare premium for years. These people have no savings, and certainly no investments.
And, to top this all off: 20 dollars an hour is a good wage in my state. 15 is not uncommon at all. If you're wondering why or how people work 2-3 jobs, this is how.
There are people who most of the time only put stuff on the card that they can afford to pay off that month, but occasionally put something big on to pay off over time. They don't put anything else big on the card until they have brought that balance to near zero.
They are in the carrying a balance group but aren't necessarily in any financial trouble.
those numbers would imply 2/3 of people are in what I would consider imminent financial collapse.
A suspect a lot of people also carry ongoing credit card debt because they're bad at math or just don't care, not all of them necessarily anywhere near financial collapse.
I have a friend who early in their career kept credit card debt for years, because he just liked to pay the minimum. As much as I tried to explain how dumb that was, it didn't help. Still, he was a software engineer making tons of money so nowhere near financial trouble, just financially dumb.
But of course there are also lots of people who truly are in credit card debt and can't afford to pay anything but the minimum.
I mean does it necessarily imply that? You could pay just the minimum payment for a very long time with no consequences, I think. The main problem is you’d hit the credit limit and would have super high interest payments. But even then the minimum payment may be viable.
But yeah, reality is that most people are not white collar workers with decent income. HN is probably one of the higher income forums on the internet just because of tech. Definitely a bubble here
I don't get how people come up with the idea of paying interests on a credit card. The interests are extortion level, 20%? Wtf? A personal line of credit is like 8%
I'm still surprised they don't track it separately. According to my credit report I have what appears to be a running balance of 5 or 6 grand. I suspect a machine learning algorithm could watch the way the balance bounces around and accurately guess that I pay it off each month, but there's no distinction on the credit report at least. In my mind a balance where you only pay off a chunk each month is different entirely from one where you always pay the entire amount. And I'd put a third category in there, too, credit card debt for which you are only making the minimum payment. This all seems like valuable data when assessing creditworthiness.
This is basically equivalent from a credit risk perspective, the banks don’t really care what % is interest vs. principal.
That seems counterintuitive. Someone carrying a growing balance at $5K making the minimum payment is obviously not the same kind of risk as someone who spends $5K/month on their credit card and then pays it off.
The credit bureaus take this into account: 30+ day delinquency is reported and will plummet your score. Not paying debt is worse than just having debt. But even having a high debt ratio means you're at-risk of not paying, so that lowers your score.
Utilization is really a proxy: the assumption is that your credit limit is adjusted to your income. If you're at 50% utilization, even if you pay off on time every time, that indicates, to them, you have a high debt to income ratio. So, if you get into financial hardship, you're more likely to not be able to pay.
The wrinkle is that credit limit is not really adjusted to income. You need to manage it yourself, and request limit raises when your income increases. You also need to have enough lines of credit to boost your limits. People think opening credit cards hurts your score, and it can, but often doesn't as your utilization goes down.
Of course this all assumes you're responsible. If you're not, then opening more credit cards is always a mistake. If you're really irresponsible, then skip credit cards altogether.
But that only kicks in when someone misses a payment. Someone who can only make the minimum (typically 1% in my experience) is at much higher risk of getting to that missed payment stage. Wouldn't you want to reflect that risk before they finally reach a more dramatic demonstration of over-extension?
If you’re only making a minimum payment consistently lower than your monthly spend + interest, your utilization will go up very quickly and you’ll look like a credit risk. This pattern is also not sustainable for the consumer; eventually they’ll hit their credit limit.
On the other hand, if you’re consistently maxing out your credit cards, you also look like a credit risk even if to date you’ve paid every month in full and on time. The bank sets credit limits based on what they see as a safe maximum given your credit history & income, so riding what’s supposed to be a maximum is worrisome.
The difference is that the bank will let you keep doing the latter indefinitely, they just won’t be as like to grant you any new credit.
As for why banks don’t want to flag low-utilization, minimum-payment accounts earlier, I assume they’re just not a serious problem: Truly marginal users eventually default and get their cards deactivated at little cost to the bank, others who use the cards only on “special occasions” and pay out over time at unfortunate levels of interest make them money.
So the metric GP is after is credit used per credit user? Normalizing the effect of an increase in credit users, and not assuming it's uniformly distributed.
Seems simpler to just publish the delinquent debt separately.
while true the connotation of the title would imply meaningful debt. And people who simply use cards for convenience and never hold a past due balance isn't really meaningful debt.
It's almost like counting the "debt" between ringing up your items at wal-mart and paying. For those 30 seconds you owe money.
Based on some quick stats you could totally turn that into a useless headline "Americans accrued 4.1 billion dollars of debt every 30 seconds in 2025"
Not just technically. They literally have credit card debt in every sense of the word.
I mean technically yes that is absolutely correct. But we all know it's not what people think of as "debt", so as previous poster said, those should really be tracked separately. It is silly to consider the float between purchase time to payment time to be debt of the same type as debt carried over month to month.
For one thing, debt basically always (temporary offers aside) pays interest. The float between purchase to payment pays no interest.
But technicalities aside, the stats on credit card household debt would be much more revealing if they separated these numbers. They even indicate opposite things:
If the temporary float balances are going up, that suggests consumers are spending more and comfortably paying it, so the economy is doing well.
Whereas if the accruing monthly debt balances are going up, that's a sign the consumer is in trouble so the economy is probably doing badly.
Comments
Does a balance that has not accrued interest count as debt for this measurement? I.e. people who always pay the statement.
The $1.26 trillion Federal Reserve figure includes both balances paid in full every month and balances accruing interest.
Convenience spending by "transactors" (roughly 35% of cardholders) who pay in full every month is something like $200 billion of this.
I'm shocked how small that part of the pie is. That's concerning.
There have been a couple of episodes of Simpsons where “credit card debt” was the subplot. Should give a good idea how “relatable” the experience it was even in the older days. Obviously I’m exaggerating, but you get the idea.
I can understand how someone right on the edge of disaster (and Homer was always on the edge) would get into debt, but those numbers would imply 2/3 of people are in what I would consider imminent financial collapse. Surely people couldn't exist in that state for lengthy periods of time. Right?
From talking to lots of working class friends, meaning, not white collar, yes - they are in a constant state of financial collapse.
I think people do not truly gauge just how poorly adjusted wages are and just how expensive everything is. A fast food meal is now anywhere from 15-20 dollars. That's about an hour of labor for many, many people.
To put into perspective, where I live a one-bedroom is gonna run you 1200 dollars a month minimum. And that's gonna be a sketchy one bedroom. At a wage of 20 dollars an hour and 35 hours a week, that's about 2800 dollars a month. So you can't afford a one bedroom, period. Bearing in mind, healthcare alone will eat a couple to a few hundred dollars a month. Food, another few hundred at least.
You can optimize, of course. Rent a house with three other people, eat only cheap cooked foods like beans, drive a beater. But it's gonna be a fierce financial struggle always. You get sick, you need surgery, your deductible is 7 grand - you're fucked. Fucked completely, and that's not counting the lost wages. Or the 300 dollars a month you've burned on a healthcare premium for years. These people have no savings, and certainly no investments.
And, to top this all off: 20 dollars an hour is a good wage in my state. 15 is not uncommon at all. If you're wondering why or how people work 2-3 jobs, this is how.
If I remember the stats correctly, I believe in the US the lowest 50% of households combined have maybe 2% of the wealth
There are people who most of the time only put stuff on the card that they can afford to pay off that month, but occasionally put something big on to pay off over time. They don't put anything else big on the card until they have brought that balance to near zero.
They are in the carrying a balance group but aren't necessarily in any financial trouble.
A suspect a lot of people also carry ongoing credit card debt because they're bad at math or just don't care, not all of them necessarily anywhere near financial collapse.
I have a friend who early in their career kept credit card debt for years, because he just liked to pay the minimum. As much as I tried to explain how dumb that was, it didn't help. Still, he was a software engineer making tons of money so nowhere near financial trouble, just financially dumb.
But of course there are also lots of people who truly are in credit card debt and can't afford to pay anything but the minimum.
I mean does it necessarily imply that? You could pay just the minimum payment for a very long time with no consequences, I think. The main problem is you’d hit the credit limit and would have super high interest payments. But even then the minimum payment may be viable.
But yeah, reality is that most people are not white collar workers with decent income. HN is probably one of the higher income forums on the internet just because of tech. Definitely a bubble here
They could, and do.
Sounds about right.
I don't get how people come up with the idea of paying interests on a credit card. The interests are extortion level, 20%? Wtf? A personal line of credit is like 8%
Do you have a citation for the 35% number? I wouldn't have thought it was that rare.
Let me Google that for you ...
Ah, here it is https://bpi.com/missing-factors-in-the-cfpbs-analysis-of-ris...
I'm surprised it's that high. While times have changed, the whole idea of the credit card was to purchase a thing you could not otherwise afford to.
Technically, people who always pay the statement do have credit card debt until they pay, it's just free debt.
I'm still surprised they don't track it separately. According to my credit report I have what appears to be a running balance of 5 or 6 grand. I suspect a machine learning algorithm could watch the way the balance bounces around and accurately guess that I pay it off each month, but there's no distinction on the credit report at least. In my mind a balance where you only pay off a chunk each month is different entirely from one where you always pay the entire amount. And I'd put a third category in there, too, credit card debt for which you are only making the minimum payment. This all seems like valuable data when assessing creditworthiness.
The credit bureaus score based on the % of credit you use (and of course that you pay on time).
This is basically equivalent from a credit risk perspective, the banks don’t really care what % is interest vs. principal.
That seems counterintuitive. Someone carrying a growing balance at $5K making the minimum payment is obviously not the same kind of risk as someone who spends $5K/month on their credit card and then pays it off.
The credit bureaus take this into account: 30+ day delinquency is reported and will plummet your score. Not paying debt is worse than just having debt. But even having a high debt ratio means you're at-risk of not paying, so that lowers your score.
Utilization is really a proxy: the assumption is that your credit limit is adjusted to your income. If you're at 50% utilization, even if you pay off on time every time, that indicates, to them, you have a high debt to income ratio. So, if you get into financial hardship, you're more likely to not be able to pay.
The wrinkle is that credit limit is not really adjusted to income. You need to manage it yourself, and request limit raises when your income increases. You also need to have enough lines of credit to boost your limits. People think opening credit cards hurts your score, and it can, but often doesn't as your utilization goes down.
Of course this all assumes you're responsible. If you're not, then opening more credit cards is always a mistake. If you're really irresponsible, then skip credit cards altogether.
But that only kicks in when someone misses a payment. Someone who can only make the minimum (typically 1% in my experience) is at much higher risk of getting to that missed payment stage. Wouldn't you want to reflect that risk before they finally reach a more dramatic demonstration of over-extension?
If you’re only making a minimum payment consistently lower than your monthly spend + interest, your utilization will go up very quickly and you’ll look like a credit risk. This pattern is also not sustainable for the consumer; eventually they’ll hit their credit limit.
On the other hand, if you’re consistently maxing out your credit cards, you also look like a credit risk even if to date you’ve paid every month in full and on time. The bank sets credit limits based on what they see as a safe maximum given your credit history & income, so riding what’s supposed to be a maximum is worrisome.
The difference is that the bank will let you keep doing the latter indefinitely, they just won’t be as like to grant you any new credit.
As for why banks don’t want to flag low-utilization, minimum-payment accounts earlier, I assume they’re just not a serious problem: Truly marginal users eventually default and get their cards deactivated at little cost to the bank, others who use the cards only on “special occasions” and pay out over time at unfortunate levels of interest make them money.
Growing balance = greater % of credit used.
So the metric GP is after is credit used per credit user? Normalizing the effect of an increase in credit users, and not assuming it's uniformly distributed.
Seems simpler to just publish the delinquent debt separately.
Consumer credit % used of credit available.
I mean you might also think the banks are issuing a bunch of dumb credit, but that suggests a problem with their financial state, not consumers.
Not just technically. They literally have credit card debt in every sense of the word.
while true the connotation of the title would imply meaningful debt. And people who simply use cards for convenience and never hold a past due balance isn't really meaningful debt.
It's almost like counting the "debt" between ringing up your items at wal-mart and paying. For those 30 seconds you owe money.
Based on some quick stats you could totally turn that into a useless headline "Americans accrued 4.1 billion dollars of debt every 30 seconds in 2025"
Not every sense - in the colloquial sense, people don't count that as being "in debt".
I mean technically yes that is absolutely correct. But we all know it's not what people think of as "debt", so as previous poster said, those should really be tracked separately. It is silly to consider the float between purchase time to payment time to be debt of the same type as debt carried over month to month.
For one thing, debt basically always (temporary offers aside) pays interest. The float between purchase to payment pays no interest.
But technicalities aside, the stats on credit card household debt would be much more revealing if they separated these numbers. They even indicate opposite things:
If the temporary float balances are going up, that suggests consumers are spending more and comfortably paying it, so the economy is doing well.
Whereas if the accruing monthly debt balances are going up, that's a sign the consumer is in trouble so the economy is probably doing badly.