Copyright 2014

Americans and Credit Card Debt

There is a fine line between credit card use and abuse: the deadline.

In the hands of careful shoppers, the responsible use of credit cards can be both useful and rewarding, earning them cash back, air miles, and other bonuses.

But the irresponsible use or outright abuse of credit cards can end up adding a substantial mark-up to the cost of everything you purchase by some 18-22% per year in interest charges on unpaid balances.

Recent debt studies show that todays youth are recognizing that. To their credit, they are developing good spending habits at an early age, which could make them much wealthier than their parents generation by the time they retire.

A Test Score That Really Matters

Parents are correct in being keenly interested in their childrens education scores. But they tend to neglect one of the most impacting scores of all: their childrens FICO score.

As defined by Investopedia, the Fair Isaac Corporations FICO score covers a substantial portion of the credit report that lenders use to assess an applicants credit risk and whether to extend a loan. It has a tremendous impact on a persons ability to purchase property or procure loans at lower rates.

Everything your teenagers or young adult children do with their money can either benefit or damage their FICO scores, since the rating takes into account hellip; payment history, current level of indebtedness, types of credit used, length of credit history and new credit, Investopedia explains.

Starting Off on the Right Foot

Recent data provided by the Fair Isaac Corporation shows that the number of American youth aged 18 to 29 without credit cards has doubled from 8% in 2007 to 16% by the end of 2012. One in every six has already developed perhaps the best consumer habit of all paying by cash.

This new generation knows something about cutting expenses. The average credit card debt for the group has fallen from $3,073 to $2,087 per person, a decrease of nearly a third in five years. As a result, 11.2% of this group now has the excellent credit rating of 760 or higher, up from 8.6% in 2005.

One measure helping to improve the debt situations of many youth is more stringent credit card qualifications. The 2010 CARD act requires persons under 21 years of age to either have a co-signer or earn enough monthly income to afford minimum card payments. These tougher requisites have turned many youth onto pre-paid cards instead.

Your Children are Watching You

Youth are often known by older generations for their rebellious nature. But debt accumulation is one area where todays youth should be commended for rebelling against their elders. The older generations debt situations are examples to be avoided.

CardHub.com published its recent report showing that Americans are continuing to accumulate debt at hyper-speed. While Q1 of 2013 saw new credit card charges of $47 billion, pay-downs during the same period lagged at a distant $32.5 billion. And that pay-down rate has shrunk by 7% over last years first quarter repayments.

Card Hub CEO Odysseas Papadimitriou summarized his teams findings to the San Antonio Business Journal:

The numbers indicate that were starting to regress a bit, and thats something that must be addressed before debt levels rise to the point where consumers can no longer sustain them and we default in droves.

Papadimitriou stresses that it will take more than just self-discipline it will take changes in attitudes and expectations as well. Thats going to ultimately require a shift in perspective from the belief that living off credit is acceptable to an approach that emphasizes saving and responsible spending in the context of post-recession income levels.

Credit is intended as a temporary spare tire to help you get to your destination when needed. It is not intended to be driven on continuously. When youre done with it, put it back in your trunk, fully inflated, ready for future use only when absolutely required.