In 1989 the average amount of credit card debt per household was $2,768. By 2004, that number had increased 89 percent to $5,219. Flat wages, rising costs, and material desires have all helped to contribute to the rapid increase.

Source: Federal Reserve Statistical Release

Between 1989 and 2006, Americans' overall credit card debt increased 315 percent. The rise can be directly related to the increase in credit card company solicitations. By 2005, there were 6 billion prescreened solicitations being sent to U.S. households--approximately 20 per year for every man, woman, and child.

A 2004 Federal Reserve survey found that three out of four households have a credit card. While some of these households admit to using the cards to live well beyond their means, others say the cards are a safety net to get through tough financial times.

According to a new study by Demos, a non-partisan public policy research and advocacy organization, a sizable majority of low and middle-income families are depending on credit cards to pay for basic expenses like housing, education, fuel, and healthcare.

'There's a common misperception that families with credit card debt live beyond their means,' said report author and Demos Senior Policy Analyst Jose Garcia, 'but the findings presented here show that credit card debt is a serious and quickly growing problem for millions of families who don't have enough income to cover the basic costs of living.'

Coping with Debt

Credit cards aren't always enough to get everything a consumer needs, which is why home equity borrowing became very popular during the housing boom. Between 2001 and 2006, Americans borrowed a whopping $1.2 trillion in home equity.

According to the Demos report, half of the households borrowed from equity to pay off higher cost debts such as credit cards. Other households used the money for home improvements, college tuition, cars, and vacations.

With lenders reducing the number of home equity loans that are offered, Americans are turning back to credit cards to make ends meet. Credit card balances have increased as home equity balances have fallen, according to a report by Merrill Lynch economist David Rosenberg. In the past six months, credit card balances have risen at an annual rate of 17 percent.

Are Americans simply unable to curb their spending or, as the Demos report suggests, is there an underlying problem?

Debt and Housing

American families are making less, but they are spending more on housing. In the last decade, median home prices have increased 45 percent. Median wages have not.

Unfortunately, this did not stop people from buying homes. Just the opposite. Americans turned out in droves during the housing boom. Even though the average household could not reasonably afford to buy a home, they bought anyway.

The result is that hundreds of thousands of people ended up with homes out of their price range and less money to spend on other essentials like food, fuel, and healthcare.

It is no accident that these people are struggling with rising living costs--they decided to spend more to buy instead of spending less to rent. In other words, they made the choice to live beyond their means.

The Demos report did not take this type of reckless behavior into account when determining that the majority of low to middle income buyers are using credit cards to cover basic living costs.

The oversight doesn't mean that Demos researchers are completely off base, but it does indicate how differently organizations and people can view the idea of families 'living beyond their means'.