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In a previous edition I mentioned an article in the Democrat Gazette that came from Bloomberg news concerning America's household debt. The primary interest of the article I wrote concerned Student Loan Debt and the fact that it does allow many young people a means of continuing their education primarily in a college. The downside to using a student loan is the responsibility of repaying the borrowed money at the same time one is starting their career at an entry-level pay grade. That probably isn't a problem in many career fields, but not all students graduate with a degree in Computer Science or Engineering. As I mentioned, the average student has a debt obligation similar to that of a new car loan. The cost of an education in college has gone up dramatically since I graduated in 1963 as has the cost of an automobile. Tuition, books and room and meals at a boarding house cost about $2,000 per year. A new car costs approximately $2,000 if one didn't get too many luxury items on a medium-sized American model. The biggest difference I see between then and now has been in the average person's real income. The cost of most services like medical care and prescription drugs and other items like housing, cars and vacations have gone up much faster than actual income of the average worker in real dollars.

One website called NerdWallet reported that in their 2017 study over the last decade medical costs increased 34 percent, food increased 22 percent, housing expenses were up 20 percent and "other" expenses increased 30 percent. Not many professions can credit themselves with providing income increases equaling those rates.

In the years following my graduation, my sons have been exposed to a different standard of living than the one offered to residents of Sugar Creek 70 years ago. They have attended college and expect their children will get degrees from similar schools. They were exposed to part-time work opportunities available to children in the city and expected to have a car almost as soon as they could drive. They grew up regularly attending professional sporting events and now take their children to those games. They expect to take their families on regular vacations to Disney World or similar widely advertised locations. My guess is much of this is done through the use of credit card borrowing -- short term, I hope.

Credit card debt is a significant portion of the $13.1 trillion household debt reported about last week. Some sources quote total household debt as $12.96 trillion which is the number I found on the website called NerdWallet. As I mentioned earlier, they had done a study concerning Household Debt that covered up to the end of September 2017. This study showed that users of credit cards were more frequently using them to cover medical expenses such as emergency room visits, hospital stays and even some surgery. This probably shouldn't be too big a surprise since the hospital or doctor want proof of payment when you go in for care. This is much different than the days when we paid the orthodontist for the boys' braces during their monthly visit and being young and healthy we didn't carry much health insurance.

It was interesting to note that of household debt, credit card borrowing, both short and long term, was estimated at $905 billion or roughly 8 percent of the total. No one hides the fact that using a credit card as a means of regular borrowing can be expensive. I have seen some rates as low as 14 percent and some as high as 28 percent on balances. There are probably much higher rates where the law allows. Paying only the monthly minimum (generally about 10 percent) on the balance can result in nearly doubling the price of the item, over time.

The study by NerdWallet could not give specific data on all credit cards because some users pay off the balance every month, which can skew the data. However, their findings show the "average" credit card balance was $15,634. They did not show a number for how many credit cards were used, but if the $905 billion is divided by the average balance, there are plenty to go around to all desiring to use them. We just don't know how many pay off the balance each month. The study also reported that the "average" interest paid on each credit card was $904. I assume that to be a year's interest. Since that is an average and some users pay no interest, there must be some very expensive interest payments by the month.

As a nation we continue to borrow money to pay for the government we support, and the security of our military, and the infrastructure we drive on. It is the practice of continually borrowing that alarms me. And that borrowing seems to justify an economy that is dependent on household debt to propel our lifestyle without a "balance" in sight.


Editor's note: Leo Lynch, an award-winning columnist, is a native of Benton County and has deep roots in northwest Arkansas. The opinions expressed are those of the author. He is a retired industrial engineer and former Justice of the Peace.

Editorial on 03/07/2018

Print Headline: Credit card debt is exorbitant

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