BANKRUPTCY AND CREDITand college expenses, have resulted in an increase
in consumer credit outstanding from 298 billion
dollars in 1980 to 1,025 billion in 1995. Thus,
while the U.S. population increased by 16 percent,
indebtedness increased by 244 percent. These are
nominal dollars, but even accounting for inflation
(constant dollars) the debt burden doubled. Dur-
ing this same time frame, mortgage lending in-
creased by 223 percent, from 1,463 billion dollars
in 1980 to 4,724 billion dollars in 1995. Credit card
debt, which was only 81.2 billion dollars in 1980,
had increased by 351 percent to 366.4 dollars in
- Thus, while there was an increase in all
forms of indebtedness, credit card debt—which
began from a smaller base—showed the largest
percentage increase.
Industry sources estimate that in 1990 there
were 1.03 billion credit cards in circulation in the
United States, and that by 2000 a projected 1.34
billion cards will be in circulation. In 1990, these
cards accounted for 466 billion dollars of spend-
ing and resulted in 236 billion dollars of debt. By
2000, the projected spending is 1,443 billion dol-
lars, with 661 billion dollars as debt.
In its survey of how consumers use credit
cards, the Board of Governors of the Federal
Reserve System reported that 54.5 percent of the
sample always paid off the balance on their credit
cards each month. Another 19.1 percent some-
times pay off the balance, and the remaining 26.4
percent hardly ever pay off the balance. It is from
this latter group that the credit card issuers run the
greatest risk of eventual nonpayment but also have
the possibility of earning the greatest amount of
interest. About 30 percent of the consumers earn-
ing less than $50,000 a year ‘‘hardly ever’’ pay off
the balance, compared with only 10.5 percent of
those who earn more than $100,000. Over 35
percent of the consumers under the age of thirty-
five hardly ever pay off their balance, compared
with 10.5 percent of people over the age of sev-
enty-five.
Credit cards alone do not pose a major finan-
cial problem for most people, even for those who
maintain a balance; the median balance is about
$1,000, with a median charge of $200 a month. For
those people with larger balances, however, and
with interest charges and sometimes penalties and
late fees added to the principal, indebtedness may
become a serious problem. And although facing
this problem can be postponed by making small
monthly payments, the balance can quickly be-
come too large ever to be handled on most salaries.The ubiquity and convenience of credit cards
has led to their growing use for additional purpos-
es: as a form of identification, as security for
returning rented cars and videotapes, and—per-
haps ironically—as an indicator of creditworthi-
ness for additional extensions of credit.INTERNATIONAL CREDIT ISSUESBesides the indebtedness of the individuals in a
population, there is also growing concern about
other forms of indebtedness. Many countries, es-
pecially those with less developed economies, have
borrowed large sums of money from more devel-
oped countries. The repayment of these loans, and
the terms that are demanded, have provided a
source of tension between the richer nations and
the poorer nations. International agencies such as
the International Monetary Fund often prescribe
austerity measures to help a country meet its
repayment obligations.The development of transnational corpora-
tions has also raised issues of which set of debtor-
creditor laws govern transactions that may span
several countries. Debtor-creditor laws and the
laws of insolvency and bankruptcy vary dramatical-
ly from country to country, and an important issue
in international commerce is how to handle prob-
lems of nonpayment. Many of these issues remain
highly contested and largely unsettled.REFERENCES
Caplovitz, David 1974 Consumers In Trouble: A Study of
Debtors in Default. New York: Free Press.
Delaney, Kevin J. 1992 Strategic Bankruptcy: How Corpora-
tions and Creditors Use Chapter 11 to Their Advantage.
Berkeley: University of California Press.
Jacob, Herbert 1969 Debtors in Court; The Consumption of
Government Services. Chicago: Rand McNally.
Ritzer, George 1995 Expressing America: A Critique of the
Global Credit Card Society. Thousand Oaks, Calif.:
Pine Forge Press.
Ryan, Martin 1995 The Last Resort: A Study of Consumer
Bankrupts. Aldershot, Eng.: Avebury.