Americans are getting better at paying off their credit card
bills and avoiding interest charges, but about a third are still struggling to
pay more than the monthly minimum, according to a new study.
Thirty-four percent of credit card users sometimes made only
the minimum payment in 2012, down from 40 percent in 2009, according to the
FINRA Investor Education Foundation survey released Wednesday.
"While it's true that too many Americans still carry a
balance and get charged interest, it has improved," foundation president
Gerri Walsh said.
The fraction of people who were always able to pay off their
full balance rose, from 41 percent in 2009 to 49 percent in 2012.
The foundation's National Financial Capability Study asked
25,000 adults about their spending, savings and other financial habits. Although people are getting a bit brighter about using their cards and making ends meet, 19 percent spent more money than they made in 2012, and 40 percent do not
have a rainy-day fund, indicating that they are living paycheck to paycheck.
"Young people in particular are unable to come up with
emergency money in a pinch," Walsh said, at least partly because of their
generally lower incomes.
Among other findings, the foundation's report said that 16
percent of card users paid a late fee in 2012, down from 26 percent in 2009; 8
percent paid an over-limit fee, down from 15 percent; and 49 percent carried a
balance in some months, down from 56 percent.
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It was unclear how much of the improvement in card
management was a direct result of people managing their finances better, and
how much was attributable to external forces such as the economy, Walsh said.
Since the recession year of 2009 unemployment has eased, while card issuers
have dropped many of their riskiest, default-prone customers. In addition, the Credit CARD Act now requires prominent
notices on monthly bills warning about the high interest costs associated
with making only the minimum payment.
The prescription for avoiding costly interest charges on
credit cards is to maintain a rainy-day fund equal to about three months' expenses, Walsh said.
"If you have that buffer you'll be able to pay that car
repair or refrigerator," Walsh said, without having plunge into card debt.
Another important step is to manage debt by determining which cards carry the
highest balances and interest charges and to pay them down first.
Since the end of 2009, the amount of revolving debt held by
households, chiefly credit card debt, has fallen 12.6 percent to $802 billion,
according to unadjusted figures from the Federal Reserve.
Some of the foundation survey's findings point to benefits
flowing from the CARD Act, said Kathleen Day, spokeswoman for the Center for
Responsible Lending. The 2009 law, which
took effect largely in 2010, limited late fees and over-limit fees, among other
On the other hand, "there is some anecdotal evidence
people are trying to manage their debt better," Day said. Card users
should remember that paying even a relatively small amount over the minimum
will diminish the principal balance, making a big dent in interest costs over
Some states better at paying
Card users in South Dakota, Iowa, Florida, Oklahoma and New Hampshire did best at paying more than the minimum, the survey found, while those in Nevada, Arkansas, Mississippi, Ohio and Kansas were most likely to pay only the minimum.
The lack of savings highlighted by the foundation's report
points to the need for better education about personal finances, Consumer
Financial Protection Bureau Director Richard Cordray said in a speech May 29.
"When we do not teach children about
personal finance -- about managing household budgets, saving for the future, or
making informed decisions about larger investments in an education or a home --
we are failing them in a shameful and costly way," Cordray said, according
to a copy of his prepared remarks.
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