American Are Paying Off Their Credit Card Debt During Pandemic
The coronavirus pandemic shut down most of the economy and has affected many businesses nationwide. The country is reopening, but it will take much longer to recover from the recession. But there is one unexpected positive effect of the pandemic, shrinking credit card debt.
The amount of money that Americans owe on their credit cards has rapidly decreased during the coronavirus recession. That’s a sharp contrast with the last two economic downturns. The amount of consumer revolving credit, which is mainly credit cards, decreased by another $24 billion in May, the Federal Reserve numbers show. It is down more than $100 billion since hitting a record high in February. Credit card debt had been rising prior to the pandemic but the reversed trend has brought the total under $1 trillion for the first time in nearly three years.
While millions of Americans have lost their jobs, unemployment benefits, stimulus checks and decreased spending has helped reduce overall debt. The pandemic shut down most of the country and especially leisure activities such as restaurants, hotels, sports. With people staying home, most expenses were mainly for essential purchases.
There’s some fear that once the $600 enhanced unemployment benefits expire at the end of July, we could see unemployed Americans turn to credit cards again. That has been a generous benefit provided by the CARED Act which has helped million who lost their jobs during the pandemic. The unemployment rate hit a high of 14.7% in April, but is now down to 11.1%, CNN reports.
Some types of debt actually saw an increase. The amount of non-revolving credit, which is mostly student and auto loans, actually rose by $6 billion in May.