Americans have paid down more than $100 billion in credit card debt since March of 2020, according to the Federal Reserve – bringing total credit card debt below $1 trillion for the first time in 3 years. Why and how did this happen? Let’s take a look.
Pandemic Lockdowns Have Eliminated Many Areas Of Consumer Spending
The initial wave of lockdowns shuttered all non-essential retail businesses, and while spending on eCommerce grew, overall retail spending dropped enormously during the initial wave of the pandemic.
In addition, most professional sporting events have been canceled, many movie theaters remain closed, and bars and restaurants were shut down for weeks and months – and are now open only under restrictions. This has all led to a dramatic decrease in consumer spending.
The CARES Act Provided A $1,200 Cash Injection & Additional Unemployment Payments
The CARES Act provided direct payments of up to $1,200 per household, as well as $600 in additional weekly unemployment benefits to those who lost their jobs due to the COVID-19 pandemic, providing families with the cash they needed to cover emergency expenses like rent, utilities, and groceries, and additional cash that was used to pay down debts like credit cards.
Economic Instability Is Encouraging Saving & Paying Down Debt
Though many Americans are living comfortably thanks to the CARES Act, this aid is only temporary, and many are unsure when they will be able to go back to work. This means that most people are choosing to save their money and pay down debt, rather than spend money on discretionary expenses.
This uncertainty is well-founded. Unemployment is still the highest it’s been since the 2007-08 financial crisis, and US GDP (Gross Domestic Product) dropped 32.9% in the second quarter of 2020– this represents the worst single-quarter drop in history.
The Future Of Credit Card Debt Is Unclear – With Federal Aid Running Out
The future of credit card debt in America is unclear. But despite massive economic instability due to the COVID-19 coronavirus pandemic, the federal $600/month benefit ran out on July 31, and eviction moratoriums are now being lifted across the country, exposing more than 43 million Americans to the risk of eviction from their homes.
Not only that, but the school year is beginning soon – and many schools are requiring online-only education to help reduce the spread of COVID-19 coronavirus which means childcare costs may increase, and additional spending may be required for back-to-school.
So while Americans may have done well at eliminating debt during the first wave of the pandemic, it’s likely that debt burdens will begin to grow throughout the remainder of the year and beyond as the COVID-19 crisis continues to deepen.