Gephardt: Credit Card Debt Drops As Americans Rein In Spending During Pandemic
Aug 17, 2020, 7:14 PM | Updated: 8:28 pm
SALT LAKE CITY, Utah – When the job market tanked with the rise of stay-at-home orders and COVID-19 quarantines, many analysts expected a sharp rise in credit card use as cardholders and their families would do what they could to make ends meet. Here’s some surprising statistical analysis: Credit card debt is down for most people this time around. Why?
“The fact that (credit card debt) is down in this climate is shocking,” said Ted Rossman, industry analyst for Bankrate.com.
The total revolving debt of Americans is down by 10%, according to numbers from the Federal Reserve, and earlier this spring, it was down as much as 40%.
Rossman said the government stimulus helped prop up people’s personal finances. At the same time, all the uncertainty about whether it will continue has many folks tightening their belts.
“A lot of people are really worried right now about their jobs and the state of the economy,” he explained.
Another factor: Thanks to COVID-19 restrictions, folks have not been able to spend on things like show tickets or big expensive vacations, which had brought spending down.
While charging less is certainly good news for people who struggle with credit card debt, it’s maybe not so good news for businesses that are struggling to reopen during the pandemic.
As we have reported, charging less can have an unintended consequence: If you don’t use your credit card, you run the risk of the bank canceling the card on you — which can have a major negative impact on your credit score.
If you’ve had your credit card abruptly canceled by your bank or your limit lowered recently, you're not alone.
— KSL 5 TV (@KSL5TV) August 15, 2020
Rossman’s advice for folks not wanting to rack up more debt without drawing the ire of their credit card company:
“I think bottom line – the best way to use a credit card is like a debit card. Use it for the rewards, use it for the better consumer protections but pay it off right away before interest accrues,” he said.
While people are using their credit cards during this pandemic, they are using their debit cards just as much as they were before. Statistically, debit card usage is flat.