Would a Credit Card Bill of Rights Ultimately Help or Harm Consumers?

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As Congress evaluates the credit card market and considers possible actions, the evaluations should be based upon accurate data. One of the most widely quoted figures comes from CardWeb.com, estimating the average household carries $9,300 in debt.  This number would be striking were it not completely inaccurate.

The methodology used in Card Web’s survey totals the amounts owed on credit cards at the end of each year, then divides that sum by the number of households it says have at least one credit card to come up with an average-debt-per-household figure.  This drastically overstates the total debt outstanding because it includes amounts charged on cards by businesses as well as by consumers, and also includes balances that are about to be paid off as well as those that will be carried into the next year.  This methodology increases the total debt in its sampling data by nearly 50%, by adding the debt of cardholders that do not revolve and are convenience/transaction users.

A more appropriate source for a discussion of credit card debt is the Federal Reserve Survey on U.S. Family Finances from 2001 to 2004.  The Fed survey provides long-term, reliable data that permits meaningful comparisons over long periods of time. According to the survey, the average amount of credit card debt for families in 2004 is $5,100.  Seventy-six point 4 percent of all families have some kind of debt (23.6 percent have no debt at all) and 46.2 percent of all families have credit card balances. It is worth noting that these numbers are actually even somewhat overstated.  Seventy-four point nine percent of all families have credit cards, but only 58 percent of this group carried a balance.

Put another way, among the 46.2 percent of all families that have credit card debt, the average balance among those families is $5,100.  The median amount of credit card debt for those families is $2,200—in other words, 50 percent of those families have credit card debt of more than $2,200, while 50 percent have credit card debt of less than $2,200.  We believe the median is a better comparison for year to year purposes since it drops out the outliers on both extremes—in other words, the median is not affected by the 25.1 percent of the population with no debt or any cardholders with very high amounts of debt.

Though the Fed's $5,100 figure is also an average number, it is more accurate than the CardWeb.com figure because it does not include convenience users or cards used for business purposes. As discussed above, the median of $2,200 is a more useful indicator and comparator.