Majority of Consumers Expect to Reduce Their Debt in Next Six Months

GALLUP NEWS SERVICE

PRINCETON, NJ -- Last week Experian and The Gallup Organization launched a new Personal Credit Index (PCI), designed to track people's perceptions of their credit status in four areas:

• how people's level of debt is changing

• their confidence in keeping up with their monthly payments

• how they perceive their credit rating

• whether they believe it is a good time to borrow more money

The baseline survey of more than 2,000 adults in the continental United States found a majority of Americans upbeat about their credit, with people generally more positive about the future than they are about the recent past. The survey also shows that about a fifth of all Americans say they have had to cut back on their spending because of rising interest rates. The new PCI revealed that, in general, men are more positive about their credit than are women, older people are more positive than younger people, and higher-income consumers are much more positive than lower-income consumers.

The poll, conducted Jan. 17-23, 2005, and Feb. 2-7, 2005, shows that in the next six months, 52% of consumers expect to reduce their overall debt, while just 15% expect to incur more debt. By contrast, over the past six months, consumers were about evenly split between increasing their debt (28%) and decreasing it (33%).

The vast majority of consumers are either "very confident" (50%) or "somewhat confident" (23%) that they can keep up with their monthly payments these days. Another 17% say they are worried -- 12% "somewhat worried" and 5% "very worried." When looking to the future, people are only slightly more positive: 77% are confident, just 15% are worried.

People also are slightly more positive about their credit rating in the next six months than they are now. Seventy-four percent say their credit rating today is either "excellent" (52%) or "good" (22%), 13% say "fair," and 11% say either "not too good" or "not good at all." However, 80% expect that six months from now their credit rating will be either excellent or good, 11% say fair, and 7% say not good.

Consumers are about evenly divided as to whether now is a good time (26%) or a bad time (27%) to borrow more money. Another 42% say it is neither a good nor a bad time. Consumers' expectations are that six months from now, things will not have changed much -- 21% say it will be a good time, 25% a bad time, with the plurality again taking the middle position (48%).

Interest Rates Hurting Consumers

Though interest rates continue to remain at relatively low levels from a historical point of view, the survey shows that 20% of consumers say that rising interest rates have already forced them to cut back on spending. The Federal Reserve has raised interest rates to banks six times in the past year, leading to higher interest rates on many consumer loans.

Overall, have the recent increases in interest rates caused you or your family to cut back on your spending, or have the interest rate increases not affected you one way or the other?

The poll shows that overall, about a quarter of all consumers have some type of variable credit, either on a credit card, a home mortgage, equity loan, or equity line of credit. Among these consumers, 25% report feeling the pinch of interest rates compared with 18% of consumers who do not have such loans.

Personal Credit Index

The baseline PCI has been standardized to 100, with the "present situation" index at 41 and the "future situation" index at 59. The higher score for the future suggests that consumers are more positive about their credit situations in the next six months than they are now.

The PCI also shows significant differences by demographic subgroups.

There are also significant differences by gender, with males scoring 108, compared with 93 for females.

Although people 65 and older tend to have the lowest incomes among the age categories, they still enjoy the highest PCI score (essentially tied with the 50- to 64-year-old age group). The higher score is a likely reflection of their greater experience with credit over their lives and their ability to adjust to the incomes that they have.

Survey Methods

Results in the current survey are based on telephone interviews with 1,000 national adults, aged 18 and older, conducted Jan. 17-23, 2005, and 1,007 national adults, conducted Feb. 2-7, 2005. For results based on the total sample of 2,007 national adults, one can say with 95% confidence that the maximum margin of sampling error is ±2.4 percentage points. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

Thinking for a moment about the total amount of debt you have, that is, the amount of money you owe a bank or any other lender for a mortgage, credit card, car loan, or any other personal loan or credit line.

1. Over the PAST SIX MONTHS, has your total amount of debt 1) increased a lot, 2) increased a little, 3) remained the same, 4) decreased a little, or 5) decreased a lot [Rotate 1-5/5-1]?

2. Over the NEXT SIX MONTHS, do you think your total amount of debt will 1) increase a lot, 2) increase a little, 3) remain the same, 4) decrease a little, or 5) decrease a lot [Rotate 1-5/5-1]?

3. How confident or worried do you feel about keeping up with your monthly payments THESE DAYS? Are you 1) very confident, 2) somewhat confident, 3) neither confident nor worried, 4) somewhat worried, or 5) very worried [rotate 1-5/5-1]?

4. Looking to SIX MONTHS FROM NOW, how confident or worried do you expect to feel about keeping up with your monthly payments? Do you expect you will be [rotate 1-5/5-1?

5. Taking into account both your level of income and your past record in paying your loans and credit cards, how would you describe your overall credit rating TODAY – as excellent, good, fair, not too good, or not good at all?

6. Again, taking into account both your level of income and your past record in paying your loans and credit cards, what do you expect your credit rating to be SIX MONTHS FROM NOW – excellent, good, fair, not too good, or not good at all?

7. Given interest rates and your overall amount of debt, do you think NOW is a good time or a bad time to borrow more money, or is it neither a good nor a bad time? Would that be a very good/bad or somewhat good/bad time?

8. Looking to SIX MONTHS FROM NOW, do you think it will be a good time or a bad time to borrow more money, or will it be neither a good nor a bad time? Would that be a very good/bad or somewhat good/bad time?