By Susan Tompor Detroit Free Press
WWR Article Summary (tl;dr) According to new research, credit cards and college loans may be easy for younger consumers to obtain. But when it comes to dealing with debt, too often the deck can be stacked against millennials, Hispanics and African Americans. Detroit Free Press
Gabriela Santiago-Romero, 24, knows too well how easy it is for younger consumers to be late with making payments on credit card bills.
She was juggling too many bills, holding down three to five jobs, and taking four to five classes in college. She opened credit cards to cover gas, food and sometimes a little makeup and clothes for "shopping therapy." She was busy and tripped up on all the different due dates.
"Since I had so many things to pay off, I would forget," said Santiago-Romero, who owes about $61,000 in student loans and credit cards.
She'd get money into the bank to make payments but then would realize that she was a day or more late on some bills.
Ding, there's the sound of another late fee.
Credit cards and college loans may be easy for younger consumers to obtain. But when it comes to dealing with debt, too often the deck can be stacked against millennials, Hispanics and African Americans, according to new research. The danger for many is that they can be tempted by too much credit these days, some experts say.
For years, the thinking was that people could build better lives by borrowing for college or taking out a mortgage. And that's still true for the most part. But more and more, some economists are asking whether it's possible that debt has gone from being a way to improve one's financial well-being to a threat to long-term financial stability.
Age, education, race and ethnicity come into play when it comes to higher rates of delinquencies, according to new research from the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis.
Significantly higher delinquency rates can be found among the young, the less-educated and nonwhite families, according to the research.
One bit of data: At least one in five young families typically has experienced a recent bout of serious delinquency, which is defined as missing at least two consecutive monthly payments.
"It's not a message that's well received," said William R. Emmons, senior economic adviser at the center and one of the authors of "The Demographics of Loan Delinquency: Tipping Points or Tip of the Iceberg?"
The working paper called "America's Debt Problem: How Too Much Debt Is Hurting U.S. Households and Holding Back the U.S. Economy" was prepared for a conference held Thursday in New York.
Young families have lower incomes and savings, as many are just starting out. Younger, less-educated and African-American or Latino families generally are more likely to miss payments than older, better-educated and white or Asian counterparts, the study said.
Some younger minorities, who aren't able to turn to their parents for much cash or aren't likely to inherit much money, find it tougher to build savings for emergencies and down payments if they tap into too much credit to cover necessities.
"Young people, for example, may face greater immediate financial challenges with higher stakes than do older people," according to the Demographics of Loan Delinquency.
Other challenges for some groups: a higher jobless rate. Less cash on hand to cover unexpected bills. Mom and Dad have less money to bail you out. Debt can be more devastating when someone loses a job or becomes sick.
Emmons said demographic factors are very predictive when it comes to troubles with bill paying. The study concluded that families headed by someone under 40 are more than twice as likely to become seriously delinquent as families headed by someone 62 or older.
One doesn't like thinking that there could be such a thing as a delinquency-prone demographic group. It goes against the idea that debt is something everyone can handle, no matter what. But younger consumers, African Americans or Hispanics can have the deck stacked against them to a degree when it comes to juggling bills to cover their debts, Emmons said.
One's family background and finances could be worth thinking about when taking out a mortgage or considering how much money to borrow for college. What happens if things don't work out?
The researchers used data from 1989 through 2013 from the Survey of Consumer Finances, which is conducted every three years by the Board of Governors of the Federal Reserve System. And the researchers concluded that age and race matter when it comes to the risk of borrowing.
By ignoring such factors, the researchers said, it's possible to subject some demographic groups to greater risks while at the same time blaming the victim when financial trouble arises.
"Even controlling for 'good versus bad choices and behavior,' being old is an advantage and being black is a disadvantage in credit markets," the study stated. "Age and race matter; individual choices and behavior may not be enough to overcome them." It's quite the opposite of the concerns about "redlining," when people of color were denied mortgages and equal access to credit based on race or ethnicity.
"It's reverse redlining, it's too much credit," Emmons said.
Santiago-Romero, who was born in Mexico and grew up in southwest Detroit, said Hispanics and people of color often are more likely to struggle with the burden of credit card bills and other debt.
"We get hit the most because we are in the most need and we are the most vulnerable," she said. "I know I'm not alone in these things."
She remembers seeing her mother collect a string of credit cards from big brand-name stores, but then face serious troubles paying her bills.
Santiago-Romero owed about $5,000 on six credit cards after college.
She racked up $150 in late fees alone at one point on her credit cards, money that could have gone to pay down her debt, if she had watched the due dates.
Since getting a better paying job in February, she's been able to pay off three cards and get her credit card debt down to about $2,000. She isn't using her credit cards any more to pay for anything.
Santiago-Romero, who lives in an apartment in southwest Detroit, eventually got a better handle on making credit card payments on time by having a set amount automatically debited from her checking account each month to cover the minimum payments plus some extra money to pay down her debt. She uses automatic payments for her student loans, too.
But her credit score was hurt by late fees and late payments.
She's more concerned about credit card debt and predatory loans, like payday loans, when it comes to the debt burden for people of color and younger consumers.
"I see it as a way of keeping poor people poor," Santiago-Romero said.
She makes about $50,000 a year working as an executive assistant for Wayne County Executive Warren Evans. But before getting that job, she made about $20,000 a year working for nonprofit agencies and doing some freelance photography.
Santiago-Romero was the first in her family to go to college and says she was thankful for the grants and scholarships she received to attend the University of Detroit Mercy. Some professors even helped her out by giving her some of their used books. She graduated with a bachelor of science, international business degree in May 2015.
She and her mother paid about $5,500 together each year for the five years that she attended UDM.
But she still owes about $59,000 in student loans and needed to turn to an income-driven repayment plan to reduce her monthly payments.
While she remains hopeful that her finances will improve as she moves forward in her career, she knows the struggle of dealing with student loans and credit card debt. Sometimes Santiago-Romero wishes she had understood the costs of college loans more before taking them out.