One Quarter Of All Credit Card Debt Now Goes To Pay Necessary Expenses

The next major debt crisis is in the making, as pay rates have stagnated, expenses continue to rise, and the job book slowly decreases. Based on the current economic an political situation, there is a high chance of a serious economic crisis in approximately five years from now. When such a crisis does happen at whatever time it does, for such crises have a cyclical pattern to them, it will likely destroy any of the “gains” made since 2009.

There are several signs of this crisis building, which include the high rates of subprime auto loans, a housing bubble that is acknowledged in all major cities, and the current job situation as noted above. Another sign has been added to the pool of evidence, as now one quarter of credit card debt is due to people paying for vital necessities such as rent, food, or utilities according to a report:

American have an average of $6,506 in credit card debt, according to a new Experian report out this week. But which expenses are adding to that balance the most?

A full 23% of Americans say that paying for basic necessities such as rent, utilities and food contributes the most to their credit card debt, according to a new survey of approximately 2,200 U.S. adults that CNBC Make It performed in conjunction with Morning Consult. Another 12% say medical bills are the biggest portion of their debt.

That makes sense, given that day-to-day costs continue to soar. Middle class life is now 30% more expensive than it was 20 years ago. The cost of things such as college, housing and child care has risen precipitously: Tuition at public universities doubled between 1996 and 2016 and housing prices in popular cities have quadrupled, Alissa Quart, author and executive director of the Economic Hardship Reporting Project, tells CNBC Make It.

It’s now common to be just scraping by. A majority of Americans have less than $1,000 in savings and more than 70% of U.S. adults say they’d be in a difficult situation if their paycheck was delayed by a week, according to a survey of over 30,000 adults conducted by the American Payroll Association released in September.

Most debt is derived from spending on extras
Basic necessities and healthcare costs may be sending some people into debt, but more people point to spending on non-essential items like clothing and entertainment as the main culprit. In CNBC Make It’s survey, 32% of people said their discretionary spending was the No. 1 cause of their current credit card debt.

Another 9% say the majority of their debt comes from paying for travel. Americans spend an average of $483 a month on non-essentials such as dining out, entertainment, luxury items and vacations, Schwab’s 2019 Modern Wealth report found. (source, source)

That one is paying for utilities that one needs to survive on is a serious sign of a building crisis. One cannot do this long term, but many people do because they are not earning enough money to maintain their current lifestyle and so eventually will be forced to deal with the consequence of their behavior by reducing expenses and modifying their habits, a process that can be physically and psychologically taxing.

This is what happened in the 2007 economic crisis, as many people lost their jobs and were forced to take up low-paying work. Some people could not pay their bills, and were forced to declare bankruptcy, and many lost their homes or were forced into poverty.

Another economic crisis is building right now as the signs are all present. As I have warned before, the prudent man must take precautions now because he has a limited time window in which to earn extra money before yet another economic contraction. It is highly advisable if one can get overtime at work, to take as much as possible and if not, to try and secure a second income at a part-time job. This is not a time to “open a business” as much as it is to gather as much wealth as one can from the pool of what exists and save it because it will disappear in another serious economic downturn. It is arguable that the US never “recovered” at all from her economic woes, but rather has been in a period of stagnancy and inflation for over a decade that is not going to end for many years because of fundamental changes taking place to the economy that will be long-term and likely permanent. Many of these changes are being driven by automation through the use of artificial intelligence programs.