Consumers Have More Credit Card Debt than Savings

Paying off credit card balances may be difficult for consumers, according to a new survey from BankRate. The Financial Security Index survey found that 28 percent of U.S. consumers have more credit card debt than they do savings.

This finding is up from 2011, when 23 percent of consumers said they had more debt than money in their emergency savings. Greg McBride, BankRate's chief financial analyst, said this stockpiling of credit is due to several financial factors.

"This is a reflection of the stagnant incomes, long-term unemployment and high household expenses that are hampering the financial progress of many Americans," McBride said.

Trouble paying off debt
Among the other answers in the survey, 17 percent of respondents said they had no form of credit card debt or any type of savings. More than 50 percent said they had enough savings to pay off their debts, the lowest figure since 2011.

According to the Department of Commerce, the personal savings rate has dropped over the last few months, even though spending has shot up. The U.S. Personal Savings Rate – a percentage of how much of a consumers' personal income goes into their savings – dropped to 4.2 percent in November 2013. That figure is close to the low mark of 3 percent that occurred during the tail end of 2007. Kristin Reynolds, an economist with IHS Global Insight, said holiday spending in December 2013 helped increased consumer spending and helped contribute to the savings rate drop.

"Consumers took on more debt in December, not surprising considering that consumer spending increased 3.3 percent in the fourth quarter of 2013, the fastest pace since late 2010, while disposable income was not as strong," Reynolds said. "Revolving credit, which took a pause in November, inching up only $0.5 billion, expanded at the fastest year-on-year pace since before the financial crisis of 2008. Evidently, consumers increased their borrowing to finance some of their holiday spending."

Older consumers using more credit
McBride went on to say that consumers between the ages of 30 and 64 are most likely to use credit and not put any money into their savings. Among respondents, the FSI found that 33 percent of parents said they have more credit card debt than savings.

The FSI said respondents who posses a college education and who earn a higher income are more likely to put money away into an emergency fund. More than 66 percent of college graduates would more likely invest in their savings than take out more credit.

Dangers of taking out credit
Although acquiring debt is an integral part to building up credit, overspending is counterproductive to this process. By opening new lines of credit and spending more, not only will they be getting into more debt, it will also raise their credit utilization rate. With an increased rate, credit scores will be negatively impacted. With a low credit score, they may have trouble applying for loans or getting a mortgage in the future. Depleting savings and only having credit can also get consumers into a financial pinch, such as if cars break down or they need to go the hospital.

To help circumvent only using credit to pay things off, consumers can create a budget for themselves. This small financial tool can help keep track of spending habits and make sure a consumer can properly repair their credit score.