Card debt can be nagging burden

By Anuradha Raghunathan
The Dallas Morning News
May 30, 2004

DALLAS -- Ruth Learst expects to be free from credit-card debt this time next year -- all $100,000 of it.

After four years of a rigorous debt-management program, Learst reiterates one lesson: "Right now, if I use a credit card, I would pay off all the balances at the end of the month."

At one point Learst, a local government administrator in her mid-50s, and her husband, an aircraft mechanic, had 17 credit cards -- many with interest rates of 15 percent or higher. They were using them to pay for everyday living, such as clothes, gas and dining out.

The balances built up, and soon the Learsts were using all their cash to make payments to the credit-card companies. It's only now -- as they inch toward freedom from debt -- that she and her husband can even think of saving for retirement.

Experts worry about baby boomers who may, like the Learsts, be caught in a credit-card debt cycle at a time when they should be socking away money for retirement. They fear that for every household that's getting out of debt, more are getting into it.

The number of consumers who pay off their credit-card balances in full each month has dropped for three consecutive years -- from 44.4 percent in 2000 to 38.3 percent in 2003, according to newly released data from, an online publisher of information pertaining to all types of payment cards.

Experts attribute the trend in general to the country's credit culture, and in particular to the baby boomers, the huge generation of Americans who set the pace on nearly every cultural phenomenon.

"Boomers are just holding on to a younger person's behavior, even in their 50s," said David Robertson, publisher of the Nilson Report, a consumer payments newsletter. "They are using revolving credit as a financial tool."

On average, Americans pay back about 14 percent to 16 percent of their credit-card balances each month, according to Many don't even think twice about making just the minimum payments.

"Boomers are comfortable -- almost too comfortable -- with debt," said John McManus, editor in chief of American Demographics magazine. "Another factor is the expectation that they'll continue to work beyond the normal retirement age. So there isn't really a psychological inhibitor to carrying debt."

Experts say anyone taking this approach to revolving credit is courting disaster.

Interest costs can grow out of control. Many consumers end up making just the minimum payments and stay in debt far longer than they should. Consumer advocates caution against this lifestyle -- particularly for those nearing retirement.

"Sometimes debt can be OK -- it can be a house that provides shelter and may build an asset for you and your family, or an education that will pay off in the form of a higher salary," said Rob Schneider, a senior attorney with Consumers Union. "But if you're financing a lifestyle you can't afford on credit cards, you're in danger of hocking your future."

Carolyn Matthews, a 48-year-old hairdresser in Arlington, Texas, couldn't agree more. She racked up nearly $6,000 on 11 credit cards.

A single mother, she had started with just $1,000 on her credit cards in 1999. Then she took on an additional car payment, and every time she ran into a cash crunch -- be it braces for a kid, a hospital bill or a car repair -- she used her credit card.

She got behind on payments. The late fees added up, and the balance continued to grow. Making the minimum payments didn't get her anywhere. Now she's in a debt-management program and estimates that it will take her two years to pay everything off.

She can't even consider saving for retirement until that time.

Experts say the first big mistake consumers make is to live beyond their means and build up a balance on their credit cards.

The second mistake is to make just the minimum payments. That's a sure way to feed the debt beast.

If you make only minimum payments, a $2,500 balance will take 30 years and three months to pay off, at a total cost of $7,733.49. That's assuming an annual percentage rate of 17 percent and a minimum payment of 2 percent or $10, whichever is greater.

Using the same assumptions, a $5,000 balance will take 40 years and two months to pay off, at a total cost of $16,305.34.

The problem is that many consumers don't realize how little progress they're making by paying the minimum.

In California, a new law requires credit-card companies to include these calculations on every billing statement. But that's the exception rather than the rule.



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