It should be common knowledge by now, but for whatever reason it isn’t always the case: Households take on credit card debt because of sudden shocks to their incomes and savings—not because of financial irresponsibility. It follows that people attempting to discharge unsecured debts in New York bankruptcy do so for the same reasons. The most recent evidence of this truth comes from a study published by Demos, a public policy think tank.
The author of “The Debt Disparity: What Drives Credit Card Debt in America?” surveyed nearly 2,000 households with similar demographic and income characteristics and found that some of them had outstanding credit card balances while others had none. The “disparity” corresponded to a clear set of factors:
- Number one was health insurance. Compared to insured households, those with one uninsured member over the previous three years were 20 percent more likely to have outstanding credit card balances. This adds to the evidence that the new health care law will reduce medical bankruptcy.
- Surprisingly, the study found that the effect of joblessness on credit card debt was quite lasting. A household with someone who had been unemployed for two months up to three years earlier was still 14 percent more likely to have an outstanding credit card balance.
- By contrast, it wasn’t so surprising that households with college-educated earners were 22 percent less likely to have credit card debt.
- Obviously household savings correlated strongly with zero credit card balances. However, homeowners who were underwater on their mortgages were 24 times more likely to have credit card debt.
- Households with children under 18 also increased the likelihood of credit card debt.
The factor that the study did not find connected to household credit card debt was spending habits. Generally, households with savings were more likely to make large purchases while indebted households were not.
There’s a lot of stigma around debt, but it’s undeserved. The study focuses on the effects credit scores have on debtors’ ability to find work, even though there’s little reason to believe that a spell of involuntary unemployment in past years should make a worker less reliable than one who didn’t. The stigma of filing bankruptcy is likewise undeserved because its primary causes are almost certainly going to be the same as the ones that prompted people to use their credit cards in the first place: unemployment, lack of health insurance, etc.
If you have substantial credit card debt and are finding difficulties repaying it, don’t let the alleged stigma of bankruptcy discourage you from getting a fresh start. It’s a lot better than defaulting on debt.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced fair debt collection practices act Bruce Weiner for a free initial consultation.
