By Jill Jaracz


5 Min. To Read

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Not all middle class Americans are recovering equally from the Great Recession, finds the NAACP. The association commissioned a study that looked at how middle class African Americans are faring in the economic recovery and have made some interesting discoveries when it comes to this group's use of credit cards.

The study, entitled "The Challenge of Credit Card Debt for the African American Middle Class" and conducted with Demos, a public policy organization, is part of a series of reports on middle class African Americans and credit cards. The report, a subset of Demos' "National Survey on Credit Card Debt of Low- and Middle-Income Households" looks at African Americans from middle income households who had at least three months' worth of credit card debt.

The good news, according to the report, is that this group of African Americans is paying off their debt. On average they owe $5,784 on their credit cards, which is almost $1,000 less than the average $6,671 they owed five years ago. This is impressive given that the report notes that in the five years since the recession, African Americans experienced more financial loss from higher unemployment rates and larger decreases in annual income than any other group in America.

Part of the decrease in outstanding debt can be attributed to the Credit CARD Act, a law that mandates credit card companies to be fair and transparent with billing practices and fees. Information now included on credit card statements gave African American consumers more incentive to pay down their debt more quickly. They also benefited from fewer over-the-limit fees and lower interest charges.

However, nearly half of middle class African Americans are using their credit cards to get by, pulling out their plastic to pay for basic living expenses, such as rent, mortgage payments, groceries, utilities or insurance, because they don't have enough money in other financial accounts to cover their bills. This activity isn't unique to African Americans though; many Caucasian and Latino Americans also use their credit cards in this manner.

Yet for African Americans, carrying such debt could be more of a struggle. African Americans have on average a higher interest rate than whites, 17.7 percent compared to 15.8 percent, and their total monthly payment on their cards is only $368 compared to whites' $609, which means over time, African Americans will pay more in interest on their credit cards than other groups of Americans.

This in turn affects credit scores. African Americans have historically been at a disadvantage for building solid credit because they've had lower rates of employment and home ownership, and as a group they have lower wealth. They've also been targeted by predatory lending practices that relieve them of even more income and maintain a cycle of debt.

When looking at credit scores, only 66 percent of African Americans have a credit score of 620 and above, compared with 85 percent of whites. A mere 42 percent of African American households say they have "good" or "excellent" credit, while 74 of white households feel the same way. That means over half of African Americans feel their credit worthiness is "fair" or "poor."

The two groups also have dissimilar reasons for their poor credit. African Americans are much more likely to have errors on their credit report or have been late on their student loan payments. Whites, on the other hand, are more likely to hit their credit limits or be late on their mortgage payments.

Medical debt also contributes to African Americans' credit card debt, with a median of $933 of current credit card debt being due to out-of-pocket medical expenses.

The study says the CARD Act is a step in the right direction for helping the American middle class with their credit card problems, but the government can do more. The authors recommend the government put together better protections for medical debt, enacting federal legislation to protect credit card borrowers and restructuring bankruptcy laws to allow for home mortgage debt restructuring and adding measures for student loan repayments.

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