By Lisa Conti-Bacon

This is the first in a series of articles about family finance, with topics including consumer debt, when debt is a smart idea, strategies for getting out of debt, ideas for living within your means, saving for college, events and retirement, children's finances and money concerns for couples.

Consumer debt is the amount of money a person owes for previously purchased goods and services, not including debt secured by real estate.  Per the Federal Reserve's latest published statistics, as of the end of the second quarter of 2009, the total amount of consumer debt in the United States was $2,494 billion. About 36 percent of this is revolving credit, which is debt repeatedly available as periodic payments are made (like credit cards) and non-revolving, which includes car loans, student loans, loans for mobile homes and other debt that may be secured (that is associated with collateral that can be forfeited as a result of default) or unsecured.
The average outstanding credit card debt for households that have a credit card, as of the end of 2008, as reported by the April 2009 Nilson Report, was $10,679.  According to a May 2008 report by the U.S. Congress Joint Economic Committee, before the recession began, 14.7 percent of U.S. families had debt exceeding 40 percent of their income. The average credit card-indebted young-adult household spent close to 24 percent of its income on debt payments, per Draut and Silva in “Generation Broke: The Growth of Debt Among Americans.”
What does this all mean? Well, quite literally, American families are drowning in red ink.  Even the back-to-basics movement across the county since the national economic downturn has not yet made an appreciable dent in our debt. That is despite the fact it has contributed to the decrease in consumer credit at an annual rate of 10.5 percent in July 2009 as consumers shy away from additional borrowing during the recession. And these amounts are totally outside of the mortgage crisis since they do not include real estate debt.
Anyone who knows about statistics knows that the averages don't tell the complete story.  There are a large number of households whose debt is much less than the average.  According to myFICO, the consumer division of Fair Isaac, which created the FICO score and provides analytic, software and data management products and services for businesses in the financial services industry, 40 percent of credit card holders carry a balance of less than $1,000 and 48 percent of consumers carry less than $5,000 in debt (other than mortgage loans).  Of course, that means that there are others with debt much greater than average.  According to myFICO, about 15 percent of credit cardholders have card balances of $10,000 or more and nearly 37 percent carry total non-mortgage debt of more than $10,000.
Regardless of whether a family needs to gain, regain or maintain control of its debt and spending, spending habits – the reality of the difference between wants and needs and the concept of delayed gratification – are worth considering.
It isn't about denying yourself the things you truly want and need; it's about not wasting money on things that are fleeting desires or purchases made on auto pilot so that you can get greater satisfaction from things you truly want.
Consider this: if you pay $200 for tickets to a play with a credit card that carries an average interest rate (as of June 2009, per the Federal Reserve) of 14.43 percent and make the average required minimum payment of 2 percent, it will take you 11 months to pay off your bill, and you will pay $14 in interest. Will you even remember the play in 11 months?  
Or if you carry the average credit card debt of $10,679 and completely quit using the card altogether, making only minimum monthly payments, it will take you 373 months to pay off the debt, and you will pay $25,812 in total principal plus interest. That is 31 years and one month to pay off a non-mortgage debt.
If you instead saved $20 per month for that same 31 years and invested it in a mutual fund earning 12 percent, you would have $80,216 at the end of that period.  And no sleepless nights worrying about making payments on time.  
So before you whip out that plastic or sign that loan application, consider if what you are giving up is worth what you are getting in the long run.

Lisa Conti-Bacon is a certified public accountant with Hancock Askew & Co., LLP and the mother of an 8-year-old daughter and an adult stepdaughter, and a grandmother of two. She can be reached at 912-234-8243 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
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