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## What is "credit card debt"?

I'm consistently confused by what is meant by "credit card debt," for example, statistics indicating that the average household has ~15K in "credit card debt."

On an average month, DH and I spend about 4K on our credit cards, and we PIF. Unless we make the payments early, our credit reports indicate that our total credit card balances are 4000. Does that mean that we have 4000 in "credit card debt"? If so, since we only ever use credit cards to make purchases (for the rewards points), we are always going to have several thousand in "credit card debt." And as our incomes increase, and our spending increases accordingly, we may be spending 10K/month, thus always having 10,000 in "credit card debt," even though we'd be paying in full. So what does it mean that the average household has 15K in credit card debt? Is this the average balance across all people, including those who pay in full and those who do not? If so, it's hard to make much of this number at all.

Likewise, this concept is confusing with this mortgage calculator: http://cgi.money.cnn.com/tools/houseafford/houseafford.html

If I enter our numbers, it tells me we can afford...a negative house. It asks for "monthly debt (e.g. student loans, credit card payments)" -- we pay 1000 in student/car loans and 4000 in credit card bills (from the prior month's spending) for a total monthly debt of 5000. With an income of 164K, a downpayment of 35K, and monthly debt of 5K... the conservative estimate of our minimum house price is negative, and the aggressive estimate is only \$4175.

This doesn't make sense... help?

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Message 1 of 18
17 REPLIES
Moderator

## Re: What is "credit card debt"?

Data is unfortunately interpreted in many different ways; I agree that your 4K, or 10K reported balances (or the average consumer's 15K) is what they're measuring.

Looking at it deeper such as you simply write a check for your credit card expenditures at the end of the month is outside the scope of that particular bit; however, I doubt many people are writing a 15K check per month.

Mortgage calculators are another simplistic implementation, but if you were to look for their actual DTI requirements, you'd take the minimum payment on each of your credit cards, and sum that up for that part.

Also mortgages are a lot more intensive from a documentation perspective, namely you're going to have to fork over 3 or so months of your banking statements from all your checking accounts, and they'll see the cash flow where you're not carrying any debt... or that you have the assets to cover it, negative savings rate being a potential different issue.

I wouldn't worry about it.  Also if you're PIF before the statement date, then your expenses may be 4K per month, but your reported "credit card debt" is some fraction of it anyway.  It's something of a stupid measure when looked at individually, over the broad compilation of consumers in America I think it has more relevance, just not to you, and not to me either with our habits.

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Message 2 of 18
Frequent Contributor

## Re: What is "credit card debt"?

your credit cards are more like monthly expenses and it does not ask for that. It just asks for debt. I believe debt would be considered something you are making monthly payments on besides monthly expenses. I do not my consider my credit card use debt either but I bet the statistics combine all people with balances showing because they cannont determine who pays their bill in full and who revolves their balances.

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Message 3 of 18
Blogger

## Re: What is "credit card debt"?

I guess technicall a credit card balance is debt; you're liable for it and can default on it. If you're concerned about this type of debt, why don't you pay off each large purchase as soon as it posts to your account? Or even pre-pay by pushing cash to your account.

Message 4 of 18
Valued Contributor

## Re: What is "credit card debt"?

E150GT wrote:

your credit cards are more like monthly expenses and it does not ask for that. It just asks for debt. I believe debt would be considered something you are making monthly payments on besides monthly expenses. I do not my consider my credit card use debt either but I bet the statistics combine all people with balances showing because they cannont determine who pays their bill in full and who revolves their balances.

That's right.

There is no way to determine the amount of debt people carry. At least there didn't used to be. Several years ago the CRAs expanded their reporting detail and now include balances and amounts paid for each month so creditors now have the ability to distinguish the two. But since this is recent nationwide statistics continue to use only the balance reported as credit card debt.  Mortgage providers look at this stuff in detail, CC issuers may, if they choose, but it is up to them and whether they have updated analytical software or not.  Of course creditors with open accounts have always known whether you pif or not.

I have reestablished credit over the last couple years
so my moniker is, well, rather out of date.

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Message 5 of 18
Valued Contributor

## Re: What is "credit card debt"?

CC debt is the reported balance.  Whether you PIF or not it's considered DEBT when the news reports on the subject.  This is how I interpret it.  These are the numbers provided by the CR's when asked.

Message 6 of 18
Frequent Contributor

## Re: What is "credit card debt"?

I suspect that your mortgage calculator is using a multiplier of some sort.  When you input \$4k in cc payments, it could be assuming that you are making the min. payment on debt and not a PIF situation.  The calculator may infer that you have well over \$100k in total cc debt and thus is suggesting the amount leftover from your wages is not enough to cover a mortgage.

\$15k in cc debit means money owing to the ccc after your payments are accounted for.  In other words the debt is the amount you are still carrying.  If you are PIF then you have \$0k owing on your cards and therefore no debt.  That's my take on it anyway.

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Message 7 of 18
Valued Contributor

## Re: What is "credit card debt"?

Roarmeister wrote:

I suspect that your mortgage calculator is using a multiplier of some sort.  When you input \$4k in cc payments, it could be assuming that you are making the min. payment on debt and not a PIF situation.  The calculator may infer that you have well over \$100k in total cc debt and thus is suggesting the amount leftover from your wages is not enough to cover a mortgage.

\$15k in cc debit means money owing to the ccc after your payments are accounted for.  In other words the debt is the amount you are still carrying.  If you are PIF then you have \$0k owing on your cards and therefore no debt.  That's my take on it anyway.

Yep, that's what it does. There's a multiplier.

I tried different numbers for debt and they clearly are intended for balance carried debt and that's the portion of debt one should put in.

Of course when total consumer CC debt is reported it's just the balances posted at CRAs. Since more and more people are using debit cards the national credit card debt numbers may actually be understated.

I have reestablished credit over the last couple years
so my moniker is, well, rather out of date.

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Message 8 of 18
Regular Contributor

## Re: What is "credit card debt"?

greenpang wrote:

I'm consistently confused by what is meant by "credit card debt," for example, statistics indicating that the average household has ~15K in "credit card debt."

...

This doesn't make sense... help?

You've put your finger on a particularly weird aspect of the credit industry.  The fact that you can change from apparently being deep in debt to debt-free just by making your payments a week or so earlier, paying in full before the statement cycle closes as many of us on this board do, is one thing.  There also doesn't seem to be much consistency.  I once asked a mortgage LO what I should put down for my "credit card debt", explaining that I used my cards bur paid them off that way, and he said "just put down the total of all your statement balances".

I think Revelate is right that they are usually after the total of minimum payments.  But that's even crazier if you think about it.  If you do have long-term revolving debt, they qualify you for a mortgage (or other loan) at a level that guarantees you won't be able to pay off much of it?

But hey, it could be worse.  They could base lending decisions on "credit card debt" being the total of all your CLs!  Isn't completely crazy, just extremely conservative.

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Message 9 of 18
Valued Contributor

## Re: What is "credit card debt"?

In the eyes of an underwriter, "credit card debt" is whatever gets reported to the CRAs. If you're applying for a mortgage, zero out the statement balances on all your credit cards before you apply and they pull your credit. Even if you PIF and don't really consider yourself "in debt," mortgage underwriters will take those statement balances and assume you're making minimum payments. This can throw your debt-to-income ratios off.

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Message 10 of 18