Youve probably heard that the average American carries more than $8,000 in credit card debt.

Its a figure frequently cited by politicians, journalists and pundits as a sure sign of impending economic break down. They argue that consumers, already struggling under this massive burden of debt, soon will have to stop spending like drunken sailors. The economic recovery, therefore, is doomed!

The surprising thing about this statistic isn’t that it’s so widely known. Rather, it’s that the statistic paints a picture thats just plain wrong.
• In reality, most Americans owe nothing to charge card companies.
• Most households that carry balances owe $2,000 or less.
• Only about 1 in 20 American households owes $8,000 or more on credit cards.
These figures are from the Federal Reserves 2001 Survey of Consumer Finances, one of the most comprehensive assessments of what Americans own and owe. (The survey is updated every three years; a summary of 2004’s results will be published in early 2006.)

Averages don’t tell the tale
Most of the people citing the $8,000 figure credit it to CardWeb.com, a service that tracks credit card trends.

CardWeb, however, doesnt contend that the average American owes more than $8,000 on cards. Their statistics show that the average debt per American household with at least one credit card was $8,940 in 2002, the last year for which figures are available.

To get that number, CardWeb simply divided the total outstanding charge card debt at the end of 2002 — $750.9 billion — by the 84 million American households that it says have at least one charge card. (CardWeb uses a slightly different definition of household than the Fed does. And the company contends that 80% of households, rather than the Feds 76.2%, have at least one charge card.)

Now, by CardWebs measure and definition, the average debt in households with at least one credit card is growing.

If you know anything about statistics, however, you know that averages dont really tell the tale.

Consider what would happen if you and 17 of your friends and family were in a room with Bill Gates and Warren Buffett. The average net worth of a person in that room would be north of $4 billion. The fact that everybody elses personal net worth was just $100,000, or $1 million, or even $10 million, wouldnt affect the average that much because the big boys are sooooo much wealthier than you.

Take heart: Were actually frugal
In much the same way, a relatively small population with big charge card balances can skew the average to make it look like the typical American is carrying a much bigger debt load than he or she actually is. Consider:
• 23.8% of American households have no charge cards at all — no bank cards, no retail cards, nothing.
• Another 31.2% of the households the Fed surveyed paid off their most recent charge card bills in full.
• So together, the households that owed nothing on charge cards equaled 55% of the total.
Heres some better news: Paying off balances actually became more common between 1998 and 2001. The proportion of households that had bank cards (Visa, MasterCard, etc.) who reported that they regularly paid off their balances in full rose 1.5 percentage points to 55.3%.

We dont carry that much debt
Of the households that did carry a balance, the median amount owed was $1,900. That means half of the households with a balance owed more, and half owed less. (Medians are less subject to the skewing phenomenon that plagues averages; thats why economists tend to favor them.)

Bill Whitt at the VIP Forum, a Washington D.C. research firm, helped me dig even deeper. By analyzing the charge card debts of all the households the Fed surveyed, Whitt discovered:
• Only 29% of households owe $1,000 or more on their cards.
• 21% owe $2,000 or more.
• 6% owe $8,000 or more.
• 4% owe $10,500 or more.
• 1% owe $21,400 or more.
The Fed statistics pretty much gibe with what Fair Isaac, the creator of the FICO credit score, discovered when it reviewed millions of credit reports.

There are a few differences between the universe the Fed examined and the one looked at by Fair Isaac. For one thing, credit reports are individual — theres no such thing as a household or even a joint credit report. Also, you have to have and use credit to have a credit report. Finally, credit reports dont typically distinguish between balances you pay off and those you carry each month.

But again, Fair Isaacs statistics show a world in which most people are light to moderate users of credit:
• About 48% of credit card holders owed less than $1,000
• About 10% of card holders had total card balances in excess of $10,000.
• More than half of all people with charge cards use less than 30% of their total credit card limit.
• Just over 1 in 8 people use 80% or more of their charge card limit.

Theres still plenty of trouble out there
Does this mean all the hand-wringing over consumer debt is so much noise? Hardly. Although most Americans seem to be avoiding the credit card trap, there are still plenty of people on the financial edge:
• More than a third — 36% — of those who owe more than $10,000 on their cards have household incomes under $50,000, according to the VIP Forum analysis.
• 13% who owe that much have household incomes under $30,000.
• The percentage of disposable income used to pay debts is still near record highs.
• The median value of total outstanding debt owed by households rose 9.6% between 1998 and 2001.
• Bankruptcies set another record in 2003, with 1.6 million personal filings, the American Bankruptcy Institute reports.
All of that is more than enough evidence to suggest that a large number of people are overdosing on debt. The average American, though, seems to be doing just fine.