Couple Learn the High Price of Easy Credit

YPSILANTI, Mich. - On a recent evening, Christine Moellering, 40, sorted through the plastic laundry basket where she keeps the family bills, statements and coupons.

"The Sears one is 32.24 percent," Ms. Moellering said, reading a credit card statement with a balance of ,955, including 5 in monthly finance charges. The high interest rate took her by surprise. "That's nice," she said sarcastically.

Ms. Moellering, and her husband, Mark, 39, earn average salaries for their age (together about ,000 a year), live in an average-priced home and have an average cost of living. But like many other households these days, they have found that their day-to-day economic life has come to depend not just on how much they earn or spend, but also on how well they shuffle what they owe among a broad array of credit cards, home equity loans and other lines of credit.

Americans spent one in seven of their take-home dollars on debt payments last year, up from one in nine in 1980. Experts say few consumers are able to calculate the true costs of such payments.

Behind closed doors, the decisions families like the Moellerings make about their debt - when to pay it off, when to shuffle it to lower-interest sources and when to let it revolve and build - can determine how much their salaries are worth. Like many others, the Moellerings have run up avoidable penalties and occasionally spent themselves into more debt or higher interest rates, even as they have tried to juggle other balances to bring down their monthly payments.

This spring they allowed a reporter to see how they struggled with these choices. Ms. Moellering's basket recently included more unwelcome news: ,693 due on a Visa card through her credit union, including finance charges of , and ,680 on a CashBuilder Elite Visa, including a monthly finance charge of 0.

Their credit card debt came to ,228, including 0 in monthly finance charges. Interest varied from 12.1 percent to 32.24 percent. The Moellerings also have a mortgage of ,000 and a home equity loan balance of ,574, at 8 percent interest.

"We have friends in the same position," said Ms. Moellering, who earns ,000 a year as an administrative assistant. "One was off his insurance for a couple weeks and he broke his arm, and they're out 25 or 30 thousand. We've talked to them about it. It doesn't matter what you do, you always have that credit card debt."

Just a generation ago, financial profiles like the Moellerings' would have been unusual. But changes in federal regulations since the 1980s, along with consolidation in the banking industry and changed consumer attitudes toward borrowing and saving, have made credit more widespread, more heavily marketed and more confusing, with offers of more credit - at low rates - extending to even the least reliable risk. In 2006, the industry mailed out nearly 8 billion credit card offers, up from 3.5 billion in 2000.

Credit card debt, less than billion in 1968 (in current dollars), now exceeds 0 billion, more than tripling since 1988, adjusting for inflation, according to the Federal Reserve Bank. Penalty fees alone cost consumers .1 billion in 2006 - up from .8 billion in 2003, adjusted for inflation, according to R. K. Hammer, a bank card advisory firm. In part because of the debt burden, the consumer savings rate fell below zero percent in 2005 and has stayed there.

At the same time, as banks have moved from fixed interest rates to variable rates, the ability of borrowers like the Moellerings to move balances from one card to another, or from credit cards to lower-interest home equity loans, can have as much impact on their finances as whether they get a raise or trim household expenses, said Greg McBride, senior financial analyst at Bankrate.com. Especially since 2001, Mr. McBride said, as home values have increased and interest rates have dropped, home equity loans have enabled families to carry more debt - to buy more things - at lower cost.

"It's a whole change in what we consider normal now," said Vanessa G. Perry, an assistant professor of marketing at the George Washington University School of Business. "Not only has the total amount people borrow increased, but the number of instruments we borrow on has increased. An average family has a mortgage, home equity loan, various credit cards, a car loan, maybe a student loan."

The growth of easy credit has its upside, helping some families buy a first home or get through a temporary hardship. But the array of loans has become so complicated that many consumers fail to understand the different interest rates, financing charges and penalties they now face, Ms. Perry said.

For the Moellerings, juggling balances and interest rates has enabled them to pay for things they could not otherwise afford, like their 2004 wedding and house renovation, or to eat out occasionally, when "we've both had a bad day at work," Mr. Moellering said. He earns ,000 a year as a software applications designer.