Americans repaid nearly $83 billion in credit card debt last year as economic relief measures implemented during the coronavirus pandemic ultimately helped consumers catch up on past-due bills.
The combination of stimulus checks, unemployment benefits and an extended forbearance on student loans have allowed many to get a better handle on their personal finances, according to CNBC, which cited a recent debt study by WalletHub.
»NEW: Student loan forgiveness to become tax-free under COVID relief bill
Lower interest rates have also contributed to the record-setting turnabout.
Following the Great Recession of 2009, this is only “the second time in the past 35 years we’ve even ended the year owing less credit card debt than we started with,” said WalletHub analyst Jill Gonzalez.
»MORE: Millions get huge tax bills for jobless benefits received during pandemic
Revolving credit card debt among average households dropped to $8,089 by the end of 2020, CNBC reported. A January study by NerdWallet placed the total credit card debt owed by average U.S. households at $7,027, a decline of 6.34% compared with 2019.
WalletHub projects consumers will add another $50 billion in credit card debt this year, consistent with the average of $54.2 billion in credit card debt per year during the past 10 years, according to NerdWallet.
Interest rates make credit cards one of the most prohibitive ways to borrow money.
»MORE: Tax penalties gone for tapping 401(k) early, but experts still say don’t do it
Credit card companies are now charging an average of 15.99% interest on outstanding balances, which is down from a record-high average of 17.85%, CNBC reported.
»RETAIL: Despite falling profits, Macy’s expects sales to climb in 2021
A surge in consumer retail spending could be on the horizon as more Americans are vaccinated against COVID-19 and social distancing restrictions are eased, economic experts said. However, this would also likely offset recent gains in consumer debt.
»MORE: Democrats drop plan to tax corporations that don’t pay $15 minimum wage
The $1.9 trillion stimulus package, expected to land on President Joe Biden’s desk later this week, would also provide additional economic relief.
“A short-term burst of spending is inevitable,” Gonzalez said, according to CNBC. “The question is which way the pendulum swings in 2022 and beyond. ... My hope is that consumers will internalize lessons learned during the pandemic and showcase a newfound frugality.”
» FEBRUARY: Fed offers no specifics on what caused nation’s banking system to crash
While the dip in credit card debt is a positive sign, there are still many families struggling financially amid the pandemic.
While 14% of Americans said their economic standing had improved during the pandemic, another 42% said they were actually worse off, according to the survey by NerdWallet.
About the Author
