Can’t Pay Your Credit Cards? This May Be the Reason.

A census report last week noted that household income rose slightly last year, and the poverty rate decreased slightly. Good news, right? Not in context. A New York Times editorial explains:

… [A] deeper look at the belated improvement in these numbers — more than five years after the end of the last recession — underscores how the gains from economic growth have failed to benefit most of the population.

The median household income last year was still about $1,000 less than in 2000, before the onset of the last recession. In 2006, 36.5 million Americans were living in poverty — 5 million more than six years before, when the poverty rate fell to 11.3 percent.

And what is perhaps most disturbing is that it appears this is as good as it’s going to get.

Sputtering under the weight of the credit crisis and the associated drop in the housing market, the economic expansion that started in 2001 looks like it might enter history books with the dubious distinction of being the only sustained expansion on record in which the incomes of typical American households never reached the peak of the previous cycle. It seems that ordinary working families are going to have to wait — at the very minimum — until the next cycle to make up the losses they suffered in this one. There’s no guarantee they will.

The gains against poverty last year were remarkably narrow. The poverty rate declined among the elderly, but it remained unchanged for people under 65.

(snip)

This suggests that when household incomes rose, it was because more members of the household went to work, not because anybody got a bigger paycheck. The median income of working-age households, those headed by somebody younger than 65, remained more than 2 percent lower than in 2001, the year of the recession.

So, if it seems as if you are fighting an uphill battle just to stay even, it may be that you are.  Consider the increased cost of just about everything–especially gas and oil prices–and it becomes clear that many Americans are facing the reality of a budget crunch.  Once savings (if any) are exhausted, a vicious cycle comes into play.  When emergencies arise, you borrow to meet the emergency, which increases your debt payments, reduces your ability to save, and makes it even more likely that you’ll be forced to borrow again the next time an emergency arises.  The trick is to recognize this destructive cycle and do something about it.  Often, bankruptcy is the only way to stop it.