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Report examines the understandable causes of credit card debt

The American dream is a powerful idea. It tells each of us that we can achieve any level of financial security and even affluence if we are willing to work hard. Unfortunately, there are two problems with this narrative. First, it essentially asks us to judge a person’s character based on how much money he has. The rich, it would seem, are harder working than the rest of us.

Second, the narrative is simply not true. Hard work, dedication and talent count for a lot in this life, but they do not guarantee wealth or success. Plenty of Americans – including many here in the Fox Valley – have gone into serious debt not because they were bad with money, but because life took an unexpected turn. During the recession, people lost jobs and homes. Others may have suffered a medical emergency that wiped out their savings.

Recently, a public policy think tank known as Demos published a report on why some American households have substantial credit card debt while others with seemingly the same demographic statistics have little or no debt.

Is debt always the result of reckless spending? The answer is no, according to the report. In fact, Demos found, families with a lot of credit card debt tend to spend less money than their debt-free or debt-minimal counterparts.

The report reveals the factors that most influence the accumulation of credit card debt are often beyond a person’s control. Among middle-income and low-income households with working-age adults, families were more likely to have credit card debt if:

  • At least one member of the family has been without health insurance sometime within the previous three years
  • Families have children under the age of 18
  • Working-age adults have not attained a college degree
  • Families have at least one member who has been unemployed for a minimum of two months within the past three years
  • They own a home that has negative equity

This report seemingly confirms that the narrative of “work hard, get ahead” does not hold true in many cases. Medical problems, unemployment/underemployment, educational attainment and child rearing can all have a significant impact on financial health.

The takeaway message is simple but important: Being in debt does not mean you are bad or irresponsible. As such, filing for bankruptcy protection is not a sign of failure. Rather, it is a tool for good people to get back on track when life delivers the unexpected.

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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