Debt Disparity: Credit Card Debt in Maryland

Policy makers in Maryland and elsewhere should read “The Debt Disparity: What Drives Credit Card Debt in America”, released in the Fall of 2014 by the think tank Demos (www.demos.org).  Demos conducted a survey of nearly 2000 consumers to discover how consumers with outstanding credit card debt differ from those with no credit card debt. The study found that those with credit card debt are more likely to have no college degree, no health insurance, to have experienced recent unemployment and to be underwater on their mortgages. They are also more likely to have children.

EDUCATION: Respondents with a college degree are 22 percent less likely to be carrying credit card debt than high school graduates.

LACK OF INSURANCE COVERAGE: Households in which a member has gone without health insurance at some point in the last three years are 20 percent more likely to be carrying credit card debt than households in which no one has been uninsured.

CHILDREN: Households that include children under 18 years of age are 15 percent more likely to be carrying credit card debt than childless households.

UNEMPLOYMENT: Households where someone has been unemployed for at least two months in the last three years are 14 percent more likely to be carrying credit card debt than households that were not hit by joblessness.

SAVINGS AND HOME VALUE: The average household without credit card debt reports an amount of savings nearly three times greater than the average household with credit card debt; meanwhile homeowners that have negative equity in their homes are 24 percent more likely to be carrying credit card debt.

The findings on medical care are particularly concerning. People with credit card debt spend much more on out of pocket medical costs, particularly prescriptions, than people without. Even though they are spending more out of pocket, people with debt are more likely to forgo treatment than those without. Over 40% of those in debt reported not visiting a doctor when they had a medical problem, compared to 20% of those without credit card debt.

The study also looked at patterns of spending and saving behavior:

[T]hese patterns defy popular presumptions about debtors as irresponsible borrowers. Instead, reported patterns of spending and saving are broadly consistent with our finding that non-debted households tend to have more assets: as a result, they are more likely both to make large, discretionary purchases, and also to be saving money on a monthly basis.

In other words, those without credit card debt spent more on non-essential purchases than those with credit card debt; the debtors did not seem to be in debt because they spent money they did not have.

Following these findings, Demos makes policy recommendations including: raising the minimum wage, properly enforcing existing labor law, extending the CARD Act, and prohibiting employers from using credit reports in hiring decisions.