Released: October 29, 2008
Poll finds consumers concerned about credit in current economy
Most Americans want to avoid taking on new debt in next 12 months, study says
As the country weathers the growing economic crisis and faces a potential credit crunch, a new poll released today by Consumer Action finds that consumers are beginning to feel the strain, and many are changing how they use and plan to use credit.
The poll of more than 1,000 Americans revealed that 69% of consumers will try to pay with cash and do not expect to take on additional debt in the next 12 months; 9% report they will use a home equity line of credit or credit cards to help make ends meet. (For a spreadsheet containing all survey data, go to the Download PDF field at the bottom of this page.)
The poll also revealed that 45% of consumers are more concerned about being able to make payments on their credit cards this year than last year. A third of the respondents say they charge half or more of their monthly necessities like gas and groceries. Respondents said they use credit cards to purchase necessity items for the convenience of not having to carry a lot of cash (51%) or to take advantage of a credit card rewards program (22%). Sixteen percent said they use a credit card to purchase necessity items to make ends meet.
The data also revealed a generational and cultural divide in the use of and knowledge about credit. Young people 18-24 and Hispanics were significantly more likely than the general population to obtain payday loan advances on their salaries. Young consumers age 18-24 and those over 65 were both significantly less likely to know their main credit card APRs (44% of both groups said they did not know their APRs).
- While 33% always pay their credit card balances in full, 18% occasionally carry a balance and 17% always carry a balance.
- 10% said they used to pay their credit cards in full each month but now they can’t afford to do that.
- 66% of respondents said that they know the annual percentage rate for making purchases on the credit card that they use most often. The most commonly reported (39%) APR range was 10% or lower.
- A third (34%) said that during spikes in gas prices they are forced to use their credit cards more than ever. Among respondents age 18-24, the number grew to 68%.
- 22% of the respondents who are homeowners indicated they have home equity lines of credit, with 37% reporting balances of $25,000 or less and 37% with balances greater than $25,000.
Asked how they currently make their monthly credit card payments, 33% said they always pay their cards in full. Eighteen percent said they usually pay off their cards in full and only occasionally carry a balance.
Of those who have a credit card and use it to purchase necessities, about half (51%) said it was simply for convenience, rather than having to carry a lot of cash. Almost a quarter (22%) said they did it to take advantage of a credit card rewards program.
Sixteen percent said they use a credit card to make ends meet.
Only 6% of respondents had obtained an advance on salary through a payday loan broker or at a check-cashing store in the past 12 months. However young people age 18-24 were more likely to have done so, at 24%, as were Hispanics, at 11%.
The majority (77%) had taken fewer than five payday loans in the last 12 months. It appears that people living in areas outside of cities were significantly more likely (65%) to take out more than five payday loans in the past 12 months, as were people living in the North Central U.S. (44%).
Home equity lines of credit (HELOCs)
About a quarter (22%) of the respondents who are homeowners indicated they have home equity lines of credit (HELOC). The percentage rose to 32% among home-owning households with incomes of more than $75,000 and fell to 14% among black homeowners.
Asked to report the approximate outstanding balance on their HELOCs, 37% said $25,000 or less and 37% said greater than $25,000. Only 5% indicated they had a balance of more than $100,000.
Respondents who graduated from high school but had no college education were more likely (54%) to have balances below $25,000, while women and households with children aged 12-17 were more likely to have balances greater than $25,000 (44% and 45%.)
Almost half (47%) reported home improvements as the reason they drew on their loans. This percentage rose for people between age 35-44 (67%) and for Hispanics (64%).
Knowing the APR
Two-thirds (66%) of respondents said that they know the annual percentage rate, or APR, for making purchases on the credit card that they use most often. Among Hispanics, 73% said they knew the APR.
Among people who said they knew the APR on the card they use most often, the most commonly reported (39%) APR range was 10% or lower. Thirty one percent said they had APRs of 10%-14.99% and 22% said they had APRs of 15%-19.99%. Only 1% of respondents said their APR was 25% or higher.
Credit card fees
Of those with credit cards, 22% have paid a late or over-the-limit fee on at least one of their credit cards in the past 12 months.
Of those with credit cards, 75% said they had not opened a new credit card account in the past 12 months. Among households with no children and households of one person, this was even higher at 82% and 85% respectively.
Free credit education program
To educate consumers about credit, Consumer Action has created a new, free multilingual educational module, Staying on Track With Credit: How to Use Credit Wisely. The module includes a brochure available in Chinese, English, Korean, Spanish and Vietnamese, that stresses that credit can be a valuable financial tool for consumers who understand its costs and benefits and how to use it wisely. Also included are a training manual, lesson plan and PowerPoint slides for use by community-based organizations. In simple terms, the materials define and explain open-ended, or revolving, credit—including credit cards, home equity lines of credit and overdraft lines of credit—and discuss the pros and cons of using credit. The brochure includes tips on high-cost credit to avoid.
Click the highlighted links to view the brochure and backgrounder guide.
About the Survey
The Opinion Research Corporation conducted the phone survey of 1,005 adults from Sept. 4-7, 2008 on behalf of Consumer Action. Sixty-nine percent of the individuals surveyed own their home and 24% rent. Of the respondents, 779 (78%) have credit cards and 20% have no cards.
Consumer Action, founded in 1971, is a national non-profit consumer education and advocacy organization headquartered in San Francisco, with offices in Los Angeles and Washington, DC.
Poll finds consumers concerned about credit in current economy (survey_data.xls)