Americans Ring In The Holiday Season With Still More Credit Card Debt

November 26, 1997

GAINESVILLE — With the busiest shopping day of the year upon them, millions of American shoppers will be reaching for their credit cards to spread a little holiday cheer and a lot of post-holiday debt.

It’s called “holiday credit hangover,” and it’s an expensive American tradition.

For record numbers of Americans, season after season of unchecked spending is resulting in bankruptcy. And while the economic and emotional consequences remain severe, less social stigma is attached to bankruptcy filing now than in years past, says a University of Florida law professor whose soon-to-be-published book looks at what happens when consumers get in over their heads.

“We live in a fast-paced world, and people are bound to try to get things perhaps before they’re able to pay for them,” said Professor Winton Williams, author of “Games Creditors Play: Collecting from Overextended Consumers.” “Credit card issuers have found that they can take greater risk, they can charge higher interest and people will pay it,” he said. “Those who pay their debts pay for those who don’t.”

Only 35 percent of American credit card holders pay off their balances in full each month, according to the American Bankers Association. The average outstanding balance on a credit card is $1,700, and many people make only minimum monthly payments. Some end up in big trouble. A record 1.3 million Americans filed for bankruptcy during the 12-months that ended June 30, according to the Administrative Office of the U.S. Courts.

During the Great Depression, one out of every 215 households filed for bankruptcy. In 1997, the number stands at one out of every 100 — triple the amount filed in 1985.

“We’re a wackier, far less-disciplined culture,” said Jeffrey Davis, a bankruptcy law professor at the UF College of Law. “You don’t find this kind of undisciplined debt in other parts of the world.”

Many banks, Davis said, believe people ought not to be able to run up excessive credit card debt and have it all discharged by filing for Chapter 7 bankruptcy, which they believe is too readily available. But in a 5-4 vote last month, the Bankruptcy Review Commission disagreed, taking the position that Chapter 7 “should be available to anybody if you’re willing to fork over all of your nonexempt assets in exchange for a fresh start,” Davis said.

Still, the consequences of declaring bankruptcy can be severe, including significant restrictions on credit availability and prohibitively high interest rates, Davis said. And while not every bankruptcy results from credit card misuse, the heavy charge debts incurred by many Americans figure into many financial quandaries.

Davis notes that many people tend to overlook how much interest they pay on credit card purchases. A $3,000 credit card debt with an annual interest rate of 16.9 percent means the card holder is paying $507 a year for interest alone.

Many people are lured by mail solicitations offering low introductory interest rates, but most fail to transfer unpaid balances when those introductory rates inevitably jump after six months or a year, Davis says. The result is even more debt.

“If you’re not going to pay them off monthly, you ought to transfer your cards every year,” he said. “Be disciplined about beating the system.”

If Americans are going to continue exercising their economic freedom, Williams says, they have to learn to act responsibly. He thinks more should be done to teach people, as young as teenagers, financial responsibility.

“Some of these kids today come out of high school and they’re offered a credit card,” he said. “There’s usually a low limit on it, say $1,000, but they look at it the same as $1,000 in their pocket. And it’s strikingly different.”

An American Bankers Association survey of holiday shoppers last year showed that three-quarters of consumers planned to charge $400 or less during the holiday season, but in reality ended up slapping down the plastic for about $600.

The obvious advice is not to get in over your head, Davis says. But, he added, “That’s hard advice to take this time of year when the kids are all seeing what everybody else is getting for Christmas.”