More Debt Than We Admit

Sep 10, 2015 by

credit cardsHave you heard of the New York Federal Reserve Bank’s Survey of Consumer Finances? For numbers + personal finance geeks (like me), the every-third-year study is a gold mine of insight into Americans’ debt, savings, and income.

One tantalizing tidbit revealed in the most recent study is that the total credit card debt reported by consumers in a survey was far less than what the NY Fed determined is consumers’ actual credit card debt! The researchers were unable to reconcile the difference.

Actual Debt vs. Admitted Debt

On the one hand, researchers collected the amount of debt reported by consumers through a survey.

On the other hand, researchers gathered consumers’ debt numbers directly from lenders’ files, as compiled by reporting bureau Equifax.

The difference between the two sets of debt data? Very little for mortgages and home equity loans. And we seem to recall bankruptcies pretty well.

But when it comes to credit card debt, check out the significant difference as captured in this nifty graphic prepared by CreditCards.com:

reported vs. actual credit card debt

So average actual credit card debt is $3,900—68%—more than admitted credit card debt! Nearly $4,000 is a lot of debt to overlook. What’s going on here?

Are We Ashamed to Admit Our Credit Card Debt?

Every personal finance pundit on the planet beats the pay-off-your-credit-card-debt drum (including me!), so you have to figure nearly every consumer has heard the tune, over and over. Does that then make debtors reluctant to admit how much credit card debt they really have? Would doing so make debtors feel stupid or subject to ridicule?

Are We in Denial About Our Credit Card Debt?

During my stint as a certified credit counselor, I was astounded how many credit card accounts most clients had. Five, six, even eight credit card accounts was standard. Could it be that one reason people inclined to rely too much on credit cards get many accounts is because the ‘balance spread’ among many accounts sort of camouflages the total amount of credit card debt they’ve actually taken on? One statement (of eight!) with a $600 balance may be much easier to rationalize than a single statement with a $4,800 balance.

Do We Just not Know How Much Credit Card Debt We Have?

Given the tendency among many borrowers toward multiple credit card accounts, maybe we’re just lazy and have never bothered to add up the balances on all of our account statements. But if that were the case, one might expect people to overestimate as often as they underestimate their total credit card debt. Something else is going on besides just voluntary ignorance.

Step 1: Acknowledge the Challenge!

C’mon people, grow up: you’re not solving or limiting a credit card debt challenge by pretending it doesn’t exist or is far less severe than it really is. We all know the first step in attacking any personal problem, right? Acknowledge the problem!

Collect all of your most recent account statements, get a calculator, and add up those balances. Then add up how much total interest you paid last month. Then think about how you could be boosting your nest egg or having more fun with all that money you’re wasting on interest!

After this come-to-jebus session with your account statements, are you now inspired to attack your challenge? No? Okay, then you haven’t wasted enough money and hit rock bottom yet. Someday you will. Then come back and see me.

But if you are inspired to finally, at last, once and for all pay off your high-interest debt, then I have two simple suggestions:

  1. Schedule a free appointment with a credit counselor at a non-profit agency affiliated with the National Foundation for Credit Counseling. (Many agencies even ‘meet’ by phone or Skype!)
  2. Not to blow my own horn, but read volume 1 of my Simple Guides, Be Debt Free! This Guide explains in easy to understand language and step-by-step how to repay your high interest debt using the least precious cash. Honestly, I would not recommend my Guide if I didn’t sincerely think it will be a big help to you in repaying debt. If you cannot afford the Guide’s modest price, please send me a note and make your case for a free copy. I’m probably easier than you think! 😉

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  • I think denial is a big part of it. It’s like that big pile of dishes sitting in the sink. You know it’s there, but you ignore it and don’t really realize how much has piled up. People know they have credit card debt, but just make the minimum payments and ignore what the balances are. Out of sight, out of mind, right?

    • I think you’re right. And continuing with your dirty dishes analogy, maybe transparency could be part of the solution. When friends are stopping by, it’s easy to get motivated to clean those dishes! But when only you see and know about the mess, easy to put off ‘clean-up.’

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