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French toast ... fewer credit cards and lower debt

By Peter Andrew

I'm spending the summer in France, where I'm writing this, and it's been every bit as enjoyable as you might think. All the clichés were much in evidence: the food, the wine, the slower pace of life. But I've been in a small rural backwater in the center of the country, and something that might surprise many readers is just how friendly and welcoming the local people are. Smile and use the few French words you know, and you can make friends for life. (WARNING: Don't try this in Paris.)

When money is not all that matters

Many locals outside the big cities also seem amazingly uninterested in money. A British friend told me how the stylish chromed-metal frame for his glass-topped dining table broke when he was moving down here. A new neighbor kindly offered to take it to a steel fabrication factory in a nearby town to see if someone there could weld it back together. It came back, its strength restored and looking as good as new, and the friend asked the neighbor with some trepidation how much he owed for such a good job. "Oh, it was nothing," came the reply. "They wouldn't charge for a little thing like that."

That story chimed with other small experiences here. Small stores seem happy to trust a familiar face to return with payment even if the customer who's left her wallet at home isn't a regular. A garagiste let a friend drive his car away without payment after $1,100 in repairs, trusting that he'd come back with the money soon enough.

It occurred to me that perhaps some of this is a result of lower personal debt levels in France. If you have to make payments on your mortgage, credit cards, personal loan and so on, you can't afford to spend your time on favors for strangers, nor take a chance on those who might stiff you.

Less personal debt in France

According to the Federal Reserve Bank of St. Louis, household debt in France in 2014 (the last figure available) was 55.37 percent of that country's gross domestic product. At the same time, household debt in America was 81.14 percent of our GDP.

And throughout the time I've been in France I can't recall a single occasion when I saw a French person pay by credit card. Debit cards are ubiquitous, but credit cards are relatively rare. In fact, the European Central Bank published a 2014 paper stating just 1 percent of all transactions in the country involve a credit card.

Credit card balances rising in America

Things are different back home. The Fed calculates the total owed on "revolving" credit (nearly all of which is card balances) in July 2016 at $966.2 billion. Now, that's still below the all-time high of $1,004 billion seen in December 2008, but it's not far off. And it's much higher than the $790.5 billion of April 2011, when consumers were frantically paying down debt after the scare of the credit crunch and Great Recession.

In itself, this isn't a bad thing. The current, slow economic recovery probably wouldn't be happening at all without consumer confidence, and higher card debt is a sign of that. But credit bureau TransUnion came out with some eyebrow-raising figures recently: In the year ending in the second quarter of 2016, 10 million new customers acquired plastic. And, that quarter, the total of Americans with a balance on at least one card topped 133 million, with an average debt per borrower of $5,247. Worse, 11.0 percent of the total owed on plastic was on accounts run by subprime borrowers, who on average owed $5,063 each.

Taming plastic

In September 2016, the Urban Institute published the results of a study among 14,000 card users who were customers of the Arizona Federal Credit Union. Two messages were sent to them via e-mail, as online web banners when they logged in and as calendar magnets mailed to their homes. Those messages were:

  1. Don't swipe the small stuff. Use cash when it's under $20.
  2. Credit keeps charging. It adds about 20 percent to the total.

Six months later, those receiving the first message had balances that were on average $104 lower than those who'd been sent nothing. Younger people (those under 40 years) were especially likely to benefit, and their average balances were $173 lower with message 1 and $160 lower with message 2.

The person, not the plastic

Of course, plenty of card customers pay off their balances every month, never paying interest, and they have nothing to worry about. They can with no cost enjoy their plastic and all the benefits of the best credit card reward programs. But if you routinely roll forward balances, why not try following the Urban Institute's rules, and never swipe for less than $20, and think twice before charging other items by mentally adding 20 percent to the price you're paying?

What's to lose? And in a few years you could save enough for a vacation in France. In the meantime, Santé!

Peter Andrew has over 25 years of experience writing about marketing, advertising and management. He regularly covers consumer credit card topics for IndexCreditCards.com and other personal finance publications including Fox Business, TheStreet and MSN Money. He also writes frequently about mortgages and auto loans. Peter has spent extended periods living overseas, in the UK, France and Africa. He lives with his partner of 20+ years, and wastes too much of his time on cryptic crosswords.

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