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Problem Credit > Problem With Credit: African American Debt Is Increasing Faster Than Income
Problem With Credit: African American Debt Is Increasing Faster Than Income |
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As a nation standing on credit card debt, American minorities are no exception. When minority families have to spend a larger percentage of income on credit card debt, they can develop huge credit card problems while their lenders prosper. A survey of consumer finance was done by the Federal Reserve to assess wealth distribution in the U.S. from 2002-2004. Minority families were found to add on debt at a rate that substantially exceeds their increase in income, thus decreasing the overall wealth-building potential of every dollar earned. Minority families also ran up debts double that of their white counterparts. Not that white households lacked credit problems, with a debt load higher in dollar terms than minority families, but their percentage debt increases didn't exceed their average income growth level. Due to problems with credit card debt, African American families resort to crucial financial resources to pay increasing monthly interest payments, hampering savings and acquisition of assets like real estate. Other long-term disadvantages have resulted from lenders assigning rams and insurance companies setting premiums. Financial companies set interest rates based on credit scores calculated according to the use of credit and timely debt payments. The total debt of a person against their overall credit limit also influences credit score. Above-average debt lowers credit scores and drives up interest rates. Too much credit card debt adversely affects the scores of African Americans considerably. However, the survey showed that African Americans mostly accumulated debt that depreciates in value, like cars, furniture, electronics and appliances. Due to traditional redlining by regular banks, high-interest credit cards are among the few sources of loans for minorities with easy access. Lenders aim to get you on a month-to-month payment basis that's hard to break out of. The earlier they catch you in credit problems, the bigger their revenue stream becomes. Managing problems with credit cards begins mainly in college when students attempt to maintain the lifestyle they had because of their working parents or peer pressure. A Fisk University study revealed additional challenges for African American students: 50% of Fisk students that hailed from households with incomes below $55,000 faced the obligation to send money home, consequently taking on more debt than they can handle. Too many credit cards can be a disadvantage when applying for a loan or mortgage. Two or three cards are adequate. A credit report that suggests what is already owed or access to substantial money may be interpreted by potential creditors as straining your ability to repay with additional debt. Maxing out credit cards means that in the event of a sudden drop in household income arising from a layoff or illness can leave a family bereft of options except the high-cost subprime and predatory lenders, further worsening the problem with credit. As a credit rule, never make a purchase that can't be paid off in 90 days. Credit is meant for financial transaction and not for spending what you don't have. Credit management can be improved when consumers limit credit cards to a few and use them for convenience instead of borrowing. It isn't the credit cards that are the problem, only high balances are. Study findings suggest that proper financial management by students struggling from problem with credit requires actively tracking credit card use and regarding it a part of overall net worth. Concentrate on timely payments for bills instead of using all available credit. Don't despair about late payments in the past, simply be careful in the future. |
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