The New York Times

Younger Americans not only borrow heavily on their credit cards, but they repay the debt at slower rates than previous generations, new research from Ohio State University finds.

The findings suggest this bleak situation: the typical young credit card holder who keeps a balance on the card will die in debt to credit card companies, said Lucia Dunn, an economics professor at Ohio State who was a co-author of the study with Sarah Jiang, manager of credit and business strategy at Capital One Financial in McLean, Va.

If such behavior persists, Professor Dunn said, the country may eventually be faced with a financial crisis among elderly people who can’t pay off their credit cards. “They’re paying it back at much slower rate than previous generations,” she said in a telephone interview.

The study, published in the January issue of the journal Economic Inquiry, is based on two large, long-term monthly surveys conducted by Ohio State University, including one that includes not only borrowing data but also payoff data, which hasn’t previously been available to most researchers. The data allowed the researchers to more precisely estimate when Americans will be able to pay off their credit card debts.

The researchers combined the data to obtain information for 13 years, from 1997 to 2009. They examined respondents from 18 to 85 years of age, and had a final sample size of 32,542 people.

The findings suggest that someone born from 1980 to 1984 has credit card debt substantially higher than debt held by the previous two generations: on average, about $5,000 more than his or her parents at the same stage of life, and about $8,000 more than his or her grandparents.

Professor Dunn said there were several reasons why younger generations have higher credit card debt. Credit is more readily available, for one thing, and attitudes toward debt have changed. “It’s a lot more socially acceptable to have debt and go into bankruptcy,” she said.

The results also suggest that younger people are paying off their debt more slowly. The study estimates that the younger borrowers’ payoff rate is 24 percentage points lower than their parents’ and about 77 percentage points lower than their grandparents’ rate.

Younger people now also have much higher levels of student loan debt than previous generations, she noted, which makes it harder to pay off card debt.

But the study also offered some hope, in that it found that increasing the minimum required monthly payment on credit cards spurs borrowers to not only meet the minimum, but to pay off substantially more, possibly eliminating their debt years earlier.

Professor Dunn said higher minimum payments may provide a sort of “jolt” to card holders, spurring them to pay off their debt. Legislative action, like the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, has led to an increase in minimum payments for cardholders But Professor Dunn said the findings suggest regulators should press card companies further on minimum payments.

Would higher minimum payments motivate you to pay off your credit card debt? Or would they force you into default?

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