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Miamians Owe More to Credit Card Companies Than Anyone in U.S.
By LAUREN SHERMAN
Forbes.com
June 2, 2009—
Americans Still Splurging Despite Debt Warnings
Gone are the days when Americans bought a second pair of Italian leather brogues, a flat-screen TV for the bathroom, or a made-to-measure office suit without thinking twice.
A new bill passed by the Senate on May 19 aims to tighten credit-card interest rate rules. It might prevent consumers from overspending again. However, some argue these measures are unnecessary. After all, Americans are using credit cards less than before.
Declining Consumer Debt
In March 2009, outstanding consumer debt fell by $11.1 billion to $2.55 trillion, according to the Federal Reserve. Revolving debt, mostly credit card debt, dropped for the sixth consecutive month by $5.4 billion to $945.9 billion.
Yet, many Americans continue to struggle with debt. The nation remains deeply indebted to credit card companies, and that trend shows little sign of changing.
“People are tightening their belts temporarily,” says Terrence Daryl Shulman, addiction expert and founder of the Shulman Center for Compulsive Theft and Spending. “But I’m not convinced that they’re ‘cured.'”
Cities Feeling the Impact
Take Miami, Fla., as an example. The city has suffered from the real estate crash. Hotel occupancy fell 12% in the first quarter of 2009, unemployment rose to 8.5% in March, and foreclosures increased by 9% year-over-year in April.
Despite these setbacks, Miamians owe more of their personal income to credit card companies than residents in any other U.S. city. Median household income stands at $43,333, below the national average of $50,233, yet the average credit card debt per home is $9,797. That’s 22.61% of household income.
Other cities with high debt-to-income ratios include:
Tampa, Fla.: 17.1%
Los Angeles: 16.81%
Jacksonville, Fla.: 16.38%
Orlando, Fla.: 16.37%
Surprising Findings
Some cities on the list may surprise you. Austin, Texas, has a low cost of living and unemployment rate, yet households owe 14.12% of their income to credit cards.
Other affordable cities show similar patterns:
Indianapolis: 13.63%
Charlotte, N.C.: 14.33%
Cleveland, Ohio: 14.45%
Even with moderate costs of living, high unemployment forces residents to charge more than they should. For instance, Charlotte’s unemployment rate jumped to 11.4% in March 2009 from 5.2% in March 2008. Cleveland and Indianapolis hover at 8.7%, slightly below the national average but above what economists consider healthy.
Will Spending Habits Change?
Regardless of the reasons, Americans remain heavily indebted. Consumers have cut back but still overspend.
Martin Lindstrom, retail marketing expert and author of Buyology: Truth and Lies about What We Buy, predicts a permanent shift.
“This recession is a dramatic ‘wake-up call.’ People won’t forget this for years,” Lindstrom says. “These events change behavior, often without conscious effort.”
Whether Lindstrom is right or not, Americans are still spending more than they should—but maybe the era of extravagant splurging is slowly coming to an end.
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