With a Plastic Safety Net, Debt Is Inevitable

People are in so much trouble that debt-consolidation commercials are as plentiful as autumn leaves in your back yard. In one such commercial, an upper-middle-class white suburban father proudly shows off his membership to a golf club, a big single-family home and a nice car. He turns to the camera with a stoic smile and says: "I'm in debt up to my eyeballs. Somebody please help me."

That commercial tells only half the story of why so many people, including blacks, are in debt. Many people aren't in credit card trouble because they're trying to live an inflated lifestyle. People are paying their medical bills with credit. They are paying the rent on credit. They are buying groceries on credit because they can't afford the food otherwise.

The survey findings reveal that much of the debt for low- and middle-income households is "safety net" debt. One out of three households reported using credit cards to cover basic living expenses, for an average of four out of the past 12 months.

Households that reported a recent job loss or unemployment, and those without health insurance in the past three years, were almost twice as likely to use credit cards for basic living expenses.

Nearly half of households reported that after periods of paying down their debt, events happened that caused them to run up the debt again.

"It's horrible [living paycheck to paycheck] -- you pray to God that none of your children get sick or that something like the refrigerator doesn't break down because then that's when you have to use the credit card to buy a new one, and that means getting into debt," said one California focus group participant.

To help ease the pain of paying with plastic, Demos and the Center for Responsible Lending offered a number of recommendations, including one that would limit interest rate increases imposed on consumers to no more than 50 percent above the account's original rate. For example, a 12 percent initial interest rate could not be increased to more than 18 percent.

"This policy would still provide the issuer with significant additional protection against payment risk," the groups say. "Recent changes in bankruptcy laws have provided additional protection for credit card issuers in the event of borrower default, further reducing the justification for higher penalty rates."

It's a good suggestion that doesn't have a chance of getting implemented.

What can change, however, is the beating up that people do on themselves for turning to credit to survive. As I told that young woman, struggling with credit card debt does not necessarily reflect a lack of financial values. It more often than not reflects an underpaid, unemployed or underinsured life.

· On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online athttp://www.npr.org.

· By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

· By e-mail:singletarym@washpost.com.

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