The COVID-19 pandemic has brought about a host of hardships and changes. Rapid declines in credit card debt are just one of the many effects of pandemic-caused financial insecurity. In response to widespread economic uncertainty, consumers are spending less and thinking twice before accumulating new debt. In February, the Federal Reserve reported record highs in nationwide credit card debt. However, over the past six months, credit card debt has dropped by over $100 billion.
The sharp decline in debt reflects the financial insecurity and lack of consumer opportunity the pandemic has placed in American households and businesses. Not only are Americans concerned about job stability, but with statewide closures of restaurants, event venues, and bars, there is less opportunity for consumers to spend their incomes. In many ways, it makes sense that consumers are ditching debt. Here are some of the causal factors behind rapidly declining credit card debt.
Mass Unemployment
The COVID-19 outbreak spawned an economic downturn that left more than 14 million Americans out of work. In April, the unemployment rate swelled to 14.7 percent, up from a record low of 3.8 percent in February. The rise of unemployed workers during the COVID-19 pandemic has exceeded the unemployment numbers reported from the Great Recession in 2007. During the Great Recession, the number of unemployed Americans increased by 8 million and the unemployment rate peaked at 10.6 percent.
Given the dramatic unemployment statistics, it is no surprise that Americans are opting to reduce their spending habits and pay off their debt. The beginning months of the COVID-19 outbreak—March to May—marked the first time in over a decade that consumer credit activity declined for three months in a row. Economic experts predict that consumers are likely to avoid accumulating credit card debt until unemployment numbers stabilize.
Fewer Ways to Spend Money
Unemployment has been a huge contributor to reduced consumer spending. However, beyond proactive budgeting, consumers simply have fewer outlets to spend their money. In March, April, and May, the nationwide closures of restaurants, bars, and stores left consumers with very few spending options.
Even with the re-openings of businesses over the summer, there is still a reduced opportunity for spending compared to pre-coronavirus. An April 2020 survey by Hunter reported that since the start of the pandemic, 54 percent of Americans are cooking at home more. Other industries such as travel, events, and retail have seen similar trends in reduced consumer spending. Economic experts predict that as long as industries are functioning at reduced capacity, consumer spending will continue to reflect a reduced trend.
Credit Card Companies Are Closing Accounts and Enforcing New Strict Standards
In response to the financial insecurity of the pandemic, many credit card companies have taken proactive measures to help consumers. The wake of sudden mass unemployment left many Americans unable to pay their bills and credit card debt. Credit card companies responded by extending relief to customers in the form of pausing payments, forgiving late fees, and eliminating interest. Additionally, in an effort to prevent people from accumulating debt they can’t pay off, credit card companies enforced strict standards for opening a new account during the pandemic.
Consult With a Skilled Debt Settlement Lawyer for Help Resolving Your Credit Card Debt
Credit card debt is, in its own way, a nationwide problem. If you are struggling with credit card debt, you are not alone. In America, the average person has three credit cards and 55 percent of credit card holders have debt. At McCarthy Law, we are dedicated to helping our clients navigate their financial circumstances and reach a favorable debt settlement. We understand the overwhelming burden that debt can have on people’s lives and are committed to helping clients end the cycle of credit card debt. To schedule a consultation with one of our skilled debt settlement paralegals, call our office at (855) 976-5777 or fill out our online contact form.