Credit Card Deals and Debts - Are Figures lying?

Not without the help of some financial experts, politicians or journalists, it is supposed that each credit card deal made is doomed to result in a debt. It has also been stated that the average American household is crippled by as much as $8000 of credit card debt. Given that every second American owes a credit card and runs a balance on it, it is no wonder we are called credit dependent nation.

But the picture is not so frightening as they paint it. We cannot deny the existence of credit card debt, however, but are the figures really fair, are they flagging a sure economic collapse?

Well, if the situation were so awful and the burden of credit card debt actually tangible, the government would already have given the alarm, and the amount of credit cards issued as well as applicants eligible would be smaller.

However, the credit card industry is still on the rise and the popularity of credit card deals is unflagging. Why do banks and credit companies continue to push their credit card products on customers if, according to the figures cited, they cannot collect the due debts?

The answer can never be easier. The statistics is flawed. You can't believe it? Well, let's make it clear - the confusion is cased by the wrong method of calculation. Using this method, it makes no difference how responsible you are paying on your credit card deal and how good your credit history is - you still are incorrigible non-payer.

So, how do they come to this improbable figure - $8000 debt in each household? They simply used the averages. But every educated and self-respecting economist would never use averages if they want to tell more or less exact figures.

Imagine you have twenty acquaintances who make all purchases mostly with credit cards. Most of them enjoy lowest interest rates and rewards as they do not carry balances and do not owe anything to their creditor. And two of the credit card holders have accumulated significant debts on their plastics. Be attentive now, that's how they know the average. They put all the debts of all the twenty cardholders together and divide the total by twenty. As a result, each of you turns out a bad debtor! The enormous credit card balances made by the defaulters distort the actual average and you appear to be carrying more credit card debt then you really are.

 A much wiser approach to calculate the amount of the debt carried by the American households is to use medians. Medians do not skew numbers as averages do and so are favored by most economists much more.

Let's return to your twenty acquaintances. To know the median amount owed, out of the row of twenty numbers the number in the middle is considered. All the extreme numbers are excluded. This method works perfectly well when you have a great number of numbers and you want to get a fair result.

 Now that we use the median method, do we really carry that much debt? It is doubtful and if you want to know the exact numbers - 55% of households carry no balances on the credit cards, 29% owe $1000 or more, 21% run balance of $2000... After total calculation only 1% of credit consumers owe more that $ 20 000.

These numbers do not, however, mean that American credit consumers are trouble-free with their finances. There is still a large portion of customers who are defaulting on their credit cards and some of them do need credit card debt counseling or debt consolidation loan.

Figures about these people are not lying and they do add up to the overall national credit card debt but they have nothing to do with the average American.

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