Credit Card for Every Cow
Dr. Dave Kohl
grain falling into a container
Dave Kohl

At a recent conference, a well-respected extension specialist told a most interesting story. He was working with a part-time livestock producer; after reviewing the financials, the specialist was surprised that the producer showed no accounts payable or operating loans. After inquiring further, he uncovered a mountain of credit cards.

This producer was experiencing financial difficulty and turned to credit cards as his way out. He had over $35,000 of total credit card debt among 11 credit cards that were each approximately 97 percent maxed out. The specialist chuckled when he realized the producer also had 11 beef cows, a card for every cow. He jokingly wondered if the cards were in the producer’s name or those of his 11 cows.

The lesson here is that credit card debt is exploding in agriculture and across the red-hot general economy. In fact, credit card debt now exceeds $1 trillion. When combined with other consumer debt or non-mortgage debt, total household debt in the U.S. is $3.8 trillion. This means America’s household debt is nearly a quarter of the total U.S. economy (as measured by GDP), which is just a little over $19 trillion.

As this part-time producer ably demonstrated, credit cards are hidden debt. More agricultural lenders are intensifying their due diligence and digging deeper into the financials of spouses, partners and other stakeholders to uncover possible issues.

At one event focused on young producers, two participants discovered at the conference that their spouses had student debt as well as credit card debt, which were not discussed prior to marriage. This made for some very interesting impromptu counseling sessions with my colleague, Dr. Alex White of Virginia Tech, who teaches personal financial management.

Credit cards can be used as a tool to provide temporary free credit, but they can also quickly be abused, and compounding high interest rates add up. What should you watch for? If credit card balances are less than 5 percent of net income (farm and non-farm), it is like a green light. The yellow light comes on between 5 and 15 percent. Of course, the red light flashes when credit card debt exceeds 15 percent of net income.

In summary, be careful and mindful of credit card abuse as this type of debt is one of the top signs that a business (or household) is headed south. 

At the conclusion of the specialist’s story, I joked that if I had been the bull on that farm, I would have felt very left out!

Dr. Kohl is Professor Emeritus of Agricultural Finance and Small Business Management and Entrepreneurship in the Department of Agricultural and Applied Economics at Virginia Polytechnic Institute and State University. Dr. Kohl has traveled over 8 million miles throughout his professional career and has conducted more than 6,000 workshops and seminars for agricultural groups such as bankers, Farm Credit, FSA, and regulators, as well as producer and agribusiness groups. He has published four books and over 1,300 articles on financial and business-related topics in journals, extension, and other popular publications.

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