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Report: Credit card debt caused by bad luck, not bad budgeting

It is often assumed that people who get in over their heads with credit card debt do so by spending irresponsibly, making lavish purchases or buying things they know they cannot afford.

However, a new report from the think tank Demos proves otherwise. The report negates the belief that serious credit card debt is the result of unwise budgeting by showing that people with major credit card debt actually spend more frugally than those without it.

Instead of poor budgeting, the report says that hardships out of a person’s control, such as losing a job or a medical emergency, are actually the reason many people end up overburdened by credit card debt.

According to the report, families with credit card debt actually spend less than families without it and they seldom make large or lavish purchases. Rather, it’s emergency expenses that rack up credit card debt for these families, the report suggested.

Not having money in savings appears to be the reason many families turn to credit cards in times of crisis, the Demos report said. In fact, while only 9 percent of families without credit card debt lack savings, a third of families with credit card debt don’t have money stashed away.

What that means is that families are forced to pay for emergencies such as hospital stays or expenses during times of employment with their credit cards, which often have high interest rates that cause debt to increase dramatically.

This is something that we have seen to be true countless times, especially during the economic recession when many Wisconsin residents were laid off from their jobs. All it takes is one or two adverse and unlucky events to cause debt to spiral out of control.

The same applies to bankruptcy.

People often assume that individuals turn to bankruptcy after spending frivolously or beyond their means, when this usually couldn’t be further from the truth.

Most Wisconsin residents turn to bankruptcy after suffering a serious illness, losing a job, losing a spouse or being dealt another one of life’s unlucky hands. In many cases, it’s the only way to recover from these adverse events that were out of the family’s control in the first place.

Source: ThinkProgress.org, "No, People Don’t Get Buried In Credit Card Debt Because They’re Bad With Money," Bryce Covert, May 10, 2014

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