The McCains’ Credit Card Debt: Dilemma or Distraction?

With the presidential candidates having filed their required Senate Financial Disclosure Statements this week, the attention of some observers has turned to details of credit card debt currently carried by John and Cindy McCain.

The bulk of the McCains’ obligations stemmed from a pair of American Express credit cards that are held in Cindy McCain’s name. According to the disclosure reports, which present information on debts in a range rather than providing a precise figure, Mrs. McCain owed $100,000 to $250,000 on each card.

Another charge card, held by what was described as a “dependent child,” had also accumulated debts of $15,000 to $50,000.

Some of the usual critics of the GOP were quick to jump on this news and proclam it a sign that John McCain was engaged in “reckless indebtedness” and that he “can’t even balance his family budget.” For your average American family this would, no doubt, be a staggering, frightening debt load. However, the McCains are fortunate enough not to be in a situation where they are sitting around the family table clipping coupons on shopping day. If you have a lot of expenses, floating a large debt isn’t all that unusual.

Also, as Salon reports today, the majority of this debt is with American Express and carries no interest charges.

This is not an unusual practice for American Express, especially when dealing with customers with the kind of high net worth that Cindy McCain has — instead of collecting interest in these cases, the company charges high annual fees. And, despite appearances, this debt actually seems to make good financial sense for the McCains. In fact, they’re probably making money by carrying the debt, because their return from investing the money is almost certainly higher than the interest they’re paying.

The financial statements of our Presidential candidates rightly fall under public scrutiny, and we should certainly take a close look at them. However, jumping to conclusions about the financial conditions of someone in Cindy McCain’s tax bracket can sometimes lead us astray. This story is very likely not as much of an issue as it might look at first blush.

UPDATE: (In response to a reader e-mail.)

…doesn’t this speak to the personal and financial responsibility of the candidate?

I agree that it speaks to financial responsibility, but perhaps not in the way you are thinking. It may be difficult for some people to grasp if they don’t regularly engage in transactions at this level, but consider the following:

Let’s say you owe a debt of one half million dollars. Let’s also say that you happen to have a half million dollars sitting around in your savings account. If the debt is on some credit card that is charging you 19% interest and your savings account only pays 3%, you would be foolish indeed to carry it over. You would be racking up debt far faster than you would accumulate interest. But if you happened to find someone to carry that debt at no interest (as Cindy McCain apparently has) and your half million dollars in savings are in some sort of T-bill account that’s paying you 8%, then you would be equally silly to pay off the card. You’re not running up any additional debt load from the card, but you are gaining serious income from your investment. So a situation such as the one in the linked article truly does speak to financial responsibility. In this case, in a pretty smart fashion.