In response to the COVID-19 crisis, consumers are shifting their purchases from credit to debit. This massive shift comes as a result of millions of Americans filing for unemployment or finding themselves in precarious financial situations. Financial experts say this switch is here to stay. In fact, some experts estimate that in 2020, American consumers will cumulatively transfer 100 billion in purchases from high-end credit cards to debit cards. Not only is the fear of debt leading a major transition to debit cards, but it’s also having a huge impact on consumer spending habits.
The pandemic has presented Americans with unprecedented financial challenges. If you are struggling to navigate your finances during COVID-19, it is best to consult with a debt lawyer to ensure any accumulated debt doesn’t affect your financial future. Here is some useful information on how Americans are adapting their payment methods and purchases in response to coronavirus-related financial insecurity.
Will Consumers Switch to Using Debit Cards During COVID-19?
Using debit cards during times of financial uncertainty is a common trend. During the 2008 recession, many people were quick to tuck their credit cards away and use debit as their primary payment method. A similar situation transpired in 2018 during President Trump’s government shutdown and the initial shockwaves from the trade wars with China. In times of uncertainty, consumers become more pragmatic. Their high-end credit card with an annual fee loses its allure, and their debit cards make a resurgence.
How Consumers are Adapting Their Payment Methods During COVID-19
Similar to other financial crises, COVID-19 has caused an ideological shift among consumers. The pandemic consumer psyche is one of conservative consumption. With the pressure and unknowns of the ensuing economic impact, consumers see debit cards as the most ideal payment method.
The debit hypothesis is backed by consumer spending data released from major credit card companies. From May 2019 to May 2020, Visa’s credit card volumes saw a sharp fall, while total debit card purchases grew by 12 percent. Other major credit card companies have experienced similar trends.
Consumer Spending Habits During COVID-19
It is no surprise that the pandemic has drastically changed consumers’ spending habits. The Bureau of Economic Analysis (BEA) reported that in the first quarter of 2020, spending was down 6.8 percent compared to the fourth quarter of 2019. The government mandate, requiring nonessential businesses to close, caused major shifts in consumer spending. However, even as businesses have re-opened, consumer spending habits have remained relatively conservative. Here are some changes in consumer spending habits during COVID-19:
- Grocery store transactions and purchases have increased by 25 percent
- Purchases in the travel industry have dropped by 30 percent.
- In May, the consumer savings rate increased to 13 percent, up from 8 percent in February.
Consumer spending data shows a monumental shift in how Americans are managing their finances. While it is still early in the pandemic to have a sense of the long-term impacts COVID-19 will have on consumer payment preferences and spending habits, it is likely the trends of conservatism and saving will continue. Financial experts predict that as regional lockdowns emerge in the fall, consumers are likely to continue with the spending habits identified in the early stages of the pandemic.
What Should I Do With My Stimulus Check?
One of the fundamental components of the government’s coronavirus relief package was a stimulus check. In addition to the recent shift in consumer spending, research reveals that 27 percent of Americans plan to put their government-issued stimulus checks into their savings account. This reflects a growing savings trend among Americans. Putting your stimulus check into a savings account is a great way to give yourself a financial cushion and protect against potential financial volatility.
Despite the efforts of many Americans to use debit cards and the emergence of a growing savings trend, debt is plaguing a large sector of the population. Many Americans who have lost their jobs are struggling to make essential payments on their loans. If you are struggling to make loan payments, it is important to take preventative measures to protect your credit score. A negative credit score can have a huge impact on your ability to access credit in the future.
Consult With a Trusted Debt Settlement Lawyer
In addition to health concerns, COVID-19 has presented Americans with complicated financial decisions and struggles. Navigating your financial situation in a pandemic is a challenging job to do alone. If you suspect your debt is getting out of control, you should consult with a trusted debt settlement lawyer.
At McCarthy Law, we intimately understand the stress of debt and the resulting financial hardship. Our team is dedicated to fighting for your financial freedom. To schedule a consultation with a knowledgeable and experienced debt settlement professional, call our office at (855) 976-5777 or fill out an online contact form.