Nearly 34 million Americans admit they’ve been late making credit card payments and about 18 million people say they’ve missed payments entirely, according to a new survey released today by a national consumer credit counseling group.
“The results of this year’s survey are startling, but not surprising,” Susan C. Keating, president and CEO of the National Foundation for Credit Counseling (NFCC), said in a statement about the 2009 Consumer Financial Literacy Survey, released today on Capitol Hill.
“We know consumers are struggling financially, and that a lack of financial knowledge is contributing to the problems,” Keating said. “It is time that we work together to create a national movement to address the need for more financial education.”
The foundation is a coalition of nonprofit consumer credit counseling agencies that provide credit and debt management counseling to consumers seeking relief from overwhelming debt. NFCC conducts an annual survey of consumer attitudes about credit, debt and savings to gauge financial literacy. Nearly 41 percent of the 2009 survey respondents — or about 92 million adults living in America — gave themselves grades of C, D or F on their knowledge of personal finance. Eight out of 10 adults say they could benefit from advice and answers to everyday financial questions from a professional.
We know consumers are struggling financially, and that a lack of financial knowledge is contributing to the problems.
|— Susan C. Keating |
CEO, National Foundation for Credit Counseling
The survey was released as credit industry analysts project credit card charge-offs could hit a record 12 percent by mid-2010. Charge-offs are when banks write off outstanding debts as uncollectible. Moody’s Investors Service, a New York credit rating agency, cites rising unemployment as the primary reason for the spike in charge-offs. The most recent official government figures compiled by the Federal Reserve put the charge-off rate at 6.25 in the fourth quarter of 2008.
Rising charge-offs are an indication that Americans are struggling to pay their bills and may be overloaded with debt. The survey found that four in 10 Americans (44 percent) carry revolving credit card debt. That includes 6 percent who have $10,000 or more in credit card balances. Just under half of Americans (46 percent) report no month-to-month balances, six percent don’t know and four percent refused to answer.
Among the survey’s other findings:
- Nearly 26 percent of Americans — estimated at nearly 58 million adults — admit they do not pay their bills on time, including people who sometimes miss a payment but have no debts in collection (10 percent) and those struggling to pay their bills but have no debts in collection (10 percent), people who are getting calls from debt collectors and struggling to pay their bills (4 percent), and those who are seriously considering filing for bankruptcy or have filed for bankruptcy in the past three years (2 percent). Nearly three-fourths of Americans (70 percent) say they pay their bills on time and have no debts in collection.
- Consumers report making the following credit card related financial moves in the past 12 months: canceling a credit card (15 percent), making a late credit card payment (15 percent), applying for a new credit card (11 percent), missing a credit card payment (8 percent), transferring balances from one credit card to another (7 percent), making a payment that was less than the minimum amount due (7 percent), being rejected for a new credit card (6 percent), obtaining a cash advance from a credit card issuer (4 percent) and consolidating credit card debt into a personal loan (2 percent). More than half of poll respondents (58 percent) took no card related financial actions.
- Nearly a third of people who do not have savings (29 percent) say they would use a credit card if they encountered an emergency or unexpected expense. More than half (57 percent) say they would borrow the money they needed for an emergency from family or friends. About half (49 percent) would pay cash, 26 percent would take out a loan and 17 percent would neglect paying other financial obligations. Six percent say they don’t know how they would pay for an emergency.
Few request free credit reports
Although consumers are entitled to one free credit report a year from each of the three credit bureaus, few apparently take advantage of it. The NFCC survey found that 64 percent of respondents have not ordered a copy of their credit report in the past 12 months. Only a third (34 percent) indicate they have ordered the report while 1 percent say they don’t know. (See 10 things you must know about credit reports and credit scores)
In a related topic, more than a third (37 percent) say they don’t know their credit score — a number that indicates a borrower’s creditworthiness to lenders. The most commonly used model is the FICO score, developed by FICO (formerly known as Fair Isaac Corp.) and made available to consumers for a fee. The FICO score ranges from 300 to 850. Nearly a third of respondents (35 percent) say their score is 700 or higher while 12 percent report having scores of 600 or less.
Survey participants were asked if they could live cash-only lifestyles and not rely on credit cards for their monthly expenses. A majority (61 percent) say they are already living without plastic while more than a third (37 percent) say they do not live on cash alone. Of those, 33 percent say they could live cash-only if they had to and 4 percent say they would not be able to live on a cash basis.
The 2009 financial literacy survey was conducted on behalf of the NFCC by Harris Interactive. The poll was based on a telephone survey of 1,000 adults called between March 13 and 16, 2009. Results are at the 95 percent confidence level. This is the third year the survey has been conducted. Its release is timed to April’s observance of Financial Literacy Month.