Racking up the credit card debt

I don't think I've made a secret of the fact that I'm fascinated by how much credit card debt Americans accrue. I remember that when I lived in Europe at the end of the 1990s, they wouldn't even issue credit cards to most people (I don't know if this has changed).

Last night reader mw left a link that got buried, so I'm moving it up:

Credit cards soaking up gas woes

According to this article, last year, about 54% of all gas purchases were made with credit cards. This year, it's 70%. As mw said: "Wow... that's a big jump."

Other interesting factoids in the article (granted, some are obvious):

  • With a credit card, that $2.60 plus a gallon can easily morph into $3 a gallon if the consumer doesn't pay off all charges immediately and finance and interest charges start to accrue.
  • Sales of premium and midoctane gasoline have tanked over the past few years as use of regular unleaded has risen
  • The end of summer not only means fewer drivers but also less-expensive gasoline, as the specifications change to make cheaper winter grade gasoline.
(Re: the latter point—the savings is about 5¢ a gallon.)

Again, I send out my plea: I really want to know what will happen to the people who have massive personal debt if the economy should go bust. If you are able and willing to write up a short piece on the ramifications of high personal debt (other than how it affects one's credit rating), please let me know.

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I'd like to know how much of this is due to Pay at the Pump.

Ten years ago, our town did not have any pay at the pump gas stations (when bigger cities like Dallas and Houston were already rolling them out)

Now, everywhere I look I can pay at the pump.  Which means I don't have to stand in line inside, and I don't have to unbuckle the kids from their car seats as well.  And, of course, I have to pay with plastic.

Who walks around with $100 bills in their wallets for covering that next full tank refill? Lately I've resorted to stopping the pump at 1/2 tank. If everyone did it, "demand" would appear to drop in the short term.
Good point!  Luckily my Civic can still be filled for less than that :)

(I wonder for how much longer?)

Not really, unless by "short term" you mean "REALLY short term".  If everyone did this, you'd see a one-time drop in demand while we all lowered the amount of gas we drive around with, and then we'd all go right back to buying the same X gallons per week.
According to the "economists", if we punish the market by reducing our current demand, "the market" will quickly respond by lowering price to match the reduced demand.
(Tongue is in cheek here, of course.)
Yes, we "economists" do think that if you reduce demand (and beyond the extremely short-term blip that we were talking about re: not topping off gas tanks), then price will decline.  Economics, backed by empirical data in the form of a few bazillion data points, doesn't get much more basic than that.

Sorry if I'm being dense, but what's your point?  Why refer to reducing demand as "punish[ing] the market"?  That's an expression I've never heard before.

The "wisdom of the markets" says we humans should invest more and more of our finite resources into developing an "unsustainable economy". If I own a large oil field or two mega ones just for sake of argument, then it is in my Smithian short-term, self-interest (say I'm an 80 year old potentate) to use advertising of the mass deception kind in order to persuade others to buy SUV's and burn baby, burn that gasoline. Such activity increase the "Wealth of [my] Nation" and if Global Warming comes in a few years, who cares? I will have vanished before The Bottom hits. The markets always provide (... a final solution), ... err I mean Joy to the World, Joy to the Fishies in the Deep Blue sea, joy to you and me.
Talk from a UK point of view, credit cards are now for virtually everyone. I had offers of free credit cards from the time i turned 18. I didn't take them up on the offers but i know lots of friends did and now after first and second years at university have thousands of pounds of debt.

What i know is lots of Britains are playing the same game of extracting cash from the housing market boom to purchase the things we 'need' and not saving anything for a rainy day.

The comment about Pay at the Pump is a good one. I hate going inside myself, and often use a credit card (even though in general I do not use credit cards) to pay.

My good wife pays off the cards on time each month :D

Where possible, I use debit cards but that's not an option at most gas stations (at the pump) and I'd be unlikely to use them if it here offered at the pump due to pin security reasons.

Naturally, you used to be able to fill your tank with less than $20. That's my rule of thumb on when to break-out the CC vs. paying cash. Now to fill a 12 gallon tank with regular it's going to cost $30 or more.

The risk with CCs is that people will become less elastic in their demand because now it just gets added to their monthly bill, which few people look at closely.

Also, gas stations operate on really small margins. Credit cards take 1-3% of every transaction, so this will drive up the average price ever so slightly.

question du jour: what's the percentage of fully electronic pay at the pump stations compared to the year prior...
Found an old set of stats -- suggests that in 2004 the pay at pump numbers must be much higher. So perhaps the increase year over year of new pay at pump locations is less behind credit card purchases.

There is probably something interesting in the numbers in the topic article but what... could be lower incomes increasingly resorting to credit cards for fuel purchases. When I was a poor kid I certainly avoided using my credit card unless I was desperate.


Pay-at-the-pump.  In U.S., there were 119,751 C-stores at year-end 2000; up just +0.3% from 1999.  C-store expert notes about 78% of all U.S. C-stores -- and 96% of new stores -- have gas pumps.  Problem comes from fact that number of C-stores offering pay-at-the-pump increased dramatically over last five years (chart).  At year-end 2000, 69% of C-stores offered pay-at-the-pump vs just 17% in 1995.

Yes, this is the only relevant question w.r.t Pay at the Pump. If there aren't significantly more stations now than last year, then the 54% vs. 70% figures are more likely attributable to people not wanting to pay high gas prices out of pocket.
There might be another explanation.  I used to make debit purchases at supermarkets and indoors at Sheetz, a big gas/convenience store in the PA/MD area.  Soon after I opened an account near my new office, my bank began to charge 50 cents for each *debit* transaction.  So if I go to Giant, Weis or Sheetz and buy something, and tap in my ATM number, there's an extra charge on my statement.  If'n however, I choose *credit* transaction, there is no charge (to me).  Giant and Weis aren't dumb, their machines practically beg you to type in an ATM number, but I soon learned to get around that.  And at Sheetz, I spend so much on gas outside that I don't automatically run in and buy anything anymore (their subs used to be great), so less chance of a debit transaction at the counter.

Plus, who carries enough cash to pay for 40 or 50 dollars of gas?

OK, maybe. But again, did this bank policy change between 2004 and 2005 for most people? It's your last comment that's exactly the point. No one carries that much because no one wants to spend that much. So they pay with the credit card.
I think so.  The fellow working next to me said he has seen local news articles on the change in policy, and that it is widespread around here.  

And I should have noted that the money comes out of the same place, my account, with either credit or debit transactions.  The only difference is who pays the transaction fee.  

I did use a classic credit card for gas last year, when I was a self-employed builder.  I hated to do it, but I hadn't made any money yet.

I always use my Visa check card, which comes out of my checking account but is processed by Visa.  I wonder whether that counts as a "credit card purchase" in these stats?  If so, the numbers are garbage.  
Another UK perspective: I just got a credit card, even though I have next to nothing in the bank, no house and my only income is unemployment benefit. Yep, we're going down the same slippery slope as the USA. OK if you're a banker, but better tighten up the bankruptcy laws. Oh, you are doing!

From a peak oil perspective, I gave up my V8 Mustang GT a couple of years ago. I now walk, cycle or take public transport.


I live in Europe, The Netherlands (Holland, I'm Dutch)
And we have been using CC's a lot lately.
The Dutch people used to be very good at saving money, but that changed in the last decade. Now we starting to build up huge debts, just like the US.
But still it is much lower than in the US.

We use plastic to pay all the time, but usually not CC's, but direct pay from your checking or saving accounts. That way you can keep your balance easier in check. Allthough the banks start advertising agressivly on giving you debt possibilities on your saving accounts (now that is a contradictio in terminis!). Our government stated the other day that people should spend more in order to keep the economy going. The thing is, the people don't have more money to spend and are allready in debt.

As for gasoline prices, we are allready used to high prices. Now we pay around $6 for a gallon. Allthough people start to get angry, we drive like mad mans.
We have trafic congestions all over the place. You won't believe. Actually, the average speed in a automobile is nowadays equal to that when the first automobiles appeared. So much for modern cars...

My visa account CC gives me a 5% kickback on every purchase.  I use it for everything I buy.  Then at the end of the month business cycle.  I pay off the debt in full, that way I get a 5% discount on everything, + I get to leverage the payment out for a month.   BY THE WAY!!!  This only works if you pay the complete balance.  So use your head when purchasing anything.
what card do you use?  I have a Citi card which gives me 5% back on gas, groceries, and pharmacy purchases but only 1% back on others and will only give me a total of $300 in rewards per year.  It sounds like you card is much better.
I work at a full serve gas station in CT and a month or two ago I started noticing an increase in credit card purcases for gas, but mostly on fill ups. We still do a lot of cash business, but rarely for fill ups. What I have noticed is more people putting $15 or $20 on their Sunoco cards, perhaps to keep their balances at a reaonable level. The real difference is more people getting $20 dollars in gas for a fill up, and people who have larger SUV's putting $30 or $40 into their tanks.
So in my little corner of the fuel dispensing world I don't see a huge rise in credit card use, but it is climbing. What I do see are far less fill ups and less business.
Looks like drive-offs ("fill and flees"?) are increasing:
http://www.stltoday.com/stltoday/news/stories.nsf/stlouiscitycounty/story/84B6B10D51B951538625706500 18C88B?OpenDocument

But if a guy has to get to work by car and he has no money for gas, how is he going to survive?

Young folk probably have no personal rememberance of the violence in the US during the 1973 shortages. It's starting to feel like 1973 all over again.

Stations in bad areas with a lot of drive-offs tend to switch to a pay-before-you-pump model. Still, where I live (Burlington ON) we dont have that, but sometimes I've seen it when I go to Mississauga at night time.
My credit limit went up from £1000 to £1500 in January and then up to £2400 in April and I have no real income...I'm a student. The banks and credit card companies are really trying it on and THEY will get their fingers burnt too. If there's no miracle around the corner then a pretty big financial restructuring must be around the corner after that. A few have mentioned lately a possible hyperinflation scenario..bad news for savers but for debtors it will be bliss..won't it?
A few months ago I stopped paying for gas with a credit card and started paying cash only. I did this intentionally to feel the pain of how much it was costing me to drive, and to reduce the amount I spend/drive.  

It is definitely raising my consciousness of how much I drive and how much gas costs, and also frees me up to buy gas at the lowest price, not at the station whose credit card I have.

An answer to: "My Plea, people with massive personal dept and if the economy should go Bust", is quite simple. (Who will care)when this happens?
In the U.S.A., I believe sometime in October of 2005 you will not be able to declare bankruptcy due to bad dept on a lot of things, credit cards is one of them. The snowball has already started in gaining momentum and not so far in the near future it is going to hit the fence and shatter. The first few that end up in court trying to work out some type of repayment or liquidation of assets to pay off their dept will suffer the most. But as the momentum continues, middle of (2006) maybe, the cases to court will start snowballing in larger and larger numbers, (you no longer can declare bankruptcy). Remember the credit card companies can not touch you until they have their day in court. (You can keep making payments, even if your behind in them, this really pisses them off). Bad credit rating, (give me a brake), who cares, you will just have to stop buying stuff at Wal-Mart.
Any way, as the system starts getting backed-up, this is when it will shatter. Millions will be just standing around wondering if their case will ever be called and the prices on everything will just keep getting higher and higher and the banks will stop lending money. This is when the economy (of the world), will go bust. Money will probably have no or little value so you better have something to trade so you can get something to eat. People that have been forced out of their homes as settlement to the banks in paying off dept, just keep a spare key and move back in, in a week or two later. Who is the Bank going to find for a buyer? They don't have someone going around seeing if the house is still empty. Remember, the whole money system is based on faith because it really has no value. If you think that the wealthy is going to have it any better, think again.
Sorry, but there is no easy answer to getting out of dept other than stop buying stuff that doesn't keep you alive. Remember, everyone in this world has been conditioned in becoming a consumer. Ask yourslef this, how much of the stuff you have really has to do with keeping you and loved ones alive?
Your predictions remind me of the Post-Soviet Lesson for a Post-American Century articles by Dmitry Orlov for From the Wilderness :

We are renting with option to buy, and I keep wondering, if things crash, am I more likely to be kicked out as a late-paying renter or a defaulting owner?

FYI, here is the credit card fact sheet put out by the National Association of Convenience Stores, and they claim to sell 3/4 of US retail gasoline.

Particularly with the rising cost of gasoline and the higher transactions at the pump, retailers are seeing the impact of credit-card transaction fees. The overall increase in average annual gas prices from 2003 to 2004 (from $1.55 to $1.83 per gallon) led to a significant increase in the use of credit cards at the pump, with 54 percent of all gasoline customers paying with plastic in 2004. The huge increase in gasoline prices in 2005 has accelerated that trend, and NACS estimates that 70 percent of all motor fuels purchases are now paid with plastic.

For the first time in 2003, Americans made more in-store payments electronically than they did with cash or checks, according to a Dove Consulting/American Bankers Association study — 52 percent of all purchases were made with debit and credit cards.

Just to give you a feel for the big picture, I'm sure when the numbers are updated for 05 they will look similar.