Too Much Credit Card Debt

December 11, 2005

 

The good news for the U.S. economy is that American consumer is out there spending away.

Alison Gauge: "It was just getting bigger and bigger and bigger."

Finance professor Robert Manning of the Rochester Institute of Technology. As a consequence many of us are running up a lot of credit card debt.

"I like to call it, the 'just do it' culture of people that have to have it now, they worry about the cost of paying for it later."

And that's the bad news, says Manning.

Manning: "Americans are going to find themselves unable to pay their bills in a year or two even though they haven't taken on any new loans. It's simply the added costs of the higher interest rates on the borrowings."

 

Allison Gauge and her husband, Joe, have one income -- his. With that, they're paying off her student loans, a couple of cars, and a new five bedroom house, which she showed Trish Regan of CBS News.

 

Alison Gauge with Regan:

AG: "This is almost double the size of our other house."

TR: "Bigger mortgage?"

AG: "Yup, about double the size of the mortgage."

 

But they're optimistic. As many people with growing credit card debt are, says Professor Manning.

Manning With CBS news Trish Regan

R Manning: "We plan financially about how much better things will be 5 or 10 years later."

TR: "Pure optimism?"

R Manning: "Pure optimism."

Credit card debt, which was 273 billion dollars in 1992, is now more than 800 billion.

Trish Regan asked Allison and Joe Gauge:

TR: "How would you characterize your spending?"

JG: "Carefree."

AG: "Yeah, I was gonna say we could be more careful. Go to Target, you know, while we're there, get some throw pillows for the couch."

JG: "I would rather live more in the future than not give my kids some of the things, whether we take a vacation each year, or if they want something, you know, at Christmas."

 

A lot of us are going to start thinking twice, says economist Manning. Otherwise, with rising interest rates?

 

Manning: "Americans are going to find themselves unable to pay their bills in a year or two even though they haven't taken on any new loans. It's simply the added costs of the higher interest rates on the borrowings."