In February 2020, revolving consumer debt in the U.S. reached an all-time high of $1.098 trillion, according to the Federal Reserve. Revolving debt—i.e., credit card debt—has fallen each month, reaching $992 billion in June 2020. That’s the lowest the consumer revolving debt figure has been since August 2017. But what’s led to this trend?
How COVID-19 has changed American debt and spending
Reduced discretionary spending: Low consumer spending from COVID-related shutdowns is bouncing back, but many Americans continue to spend relatively less on out-of-home activities like travel, entertainment, and leisure with many restrictions still in place across the country.
Historic financial aid: Nearly 160 million stimulus checks were sent out, increasing disposable income for some while helping others stay afloat. According to a Census Bureau survey, more than a third of respondents said they planned to use their stimulus check to pay off debt or add to savings. Consumers who are prioritizing debt repayment are lowering the balances they’re carrying over from month to month.
Growing skepticism about the economy: The Consumer Confidence Index, published by The Conference Board, decreased to 84.8 in August, much lower than 130.7 in pre-COVID February. This reflects continued concerns about the economy and individual financial well-being.
Credit card issuers to the rescue: Many credit card issuers have implemented COVID-19 debt relief offerings, ranging from pausing or deferring payments to forgiving large portions of balances. The government also has COVID-19 resources from the Consumer Financial Protection Bureau, the Federal Housing Finance Agency, and more to help borrowers navigate debt repayment amid this crisis. Additionally, many credit card issuers have started monitoring accounts more closely and may tighten credit limits or close inactive accounts to help lower their risk.
How to reduce credit card debt during COVID-19
For consumers who are struggling financially because of the coronavirus pandemic, consider creating—or reworking—a budget. Borrowers should compare their income to their expenses and build a plan for the following month.
Credello can help users determine which repayment strategy makes the most sense (debt snowball, debt avalanche, or a hybrid) based on the number of debts and ultimate goal. Those who need motivation and are looking for small victories may find the debt snowball method best, while those looking to save as much as possible on interest may find the debt avalanche method more suitable.