Falling into the Debt Trap

Borrowing offers little financial cushion for the poor

(This article appeared in the Winter 2016 issue of SSA Magazine.)

We are a nation of debtors. From 1999 to 2008, the debt held by American households surged by 170 percent, from $4.6 to $12.7 trillion. (It has since leveled off.) The well-off carry the most debt, mainly in the form of mortgages. For them, debt is often an investment in the future, whether financing a home or a college education.

What's surprising is how much debt the poor and the near poor accumulate, as the "plastic safety net" increasingly replaces social welfare programs. Borrowing can help smooth rough patches caused by job loss or other temporary setbacks. It can boost upward mobility through student loans, car loans, or mortgages. More often it pulls families down, as credit cards go unpaid, medical and utility bills mount, and loan-financed education fails to produce the employment necessary to pay off the loan.

Kristin Seefeldt spent six years studying economically vulnerable households in Detroit, MI. Her report on their pervasive and almost inescapable indebtedness appears in the June 2015 Social Service Review. Entitled "Constant Consumption Smoothing, Limited Investments, and Few Repayments: The Role of Debt in the Financial Lives of Economically Vulnerable Families," it paints a grim picture of the dance with debt that, among poor households, usually produces more harm than good.

Seefeldt followed 45 households from 2006 to 2011. She interviewed the women living in the households, most of which were led by single women. She found that they incurred debt in many different ways and used complicated strategies to avoid its worst consequences. For example, many owed money to utility companies but paid just enough each month to keep their services from being cut. They took out multiple credit cards.

"There was no recovery from debts," says Seefeldt, an assistant professor at the University of Michigan's School of Social Work. "Even the few who declared bankruptcy ended up taking on additional debts."

And yet debt is all but necessary. "You don’t want to cut off a line of credit to people," she says. "That's become part of the mainstream. You need a credit history to function now, to get a job, to get a place to live.”


Seefeldt, Kristin S. "Constant Consumption Smoothing, Limited Investments, and Few Repayments: The Role of Debt in the Financial Lives of Economically Vulnerable Families." Social Service Review, 89 (2): 263-300.