How Americans are Safeguarding Their Finances During an Economic Downturn
In the middle of a year characterized by uncertainty, Americans are finding stability through reducing their credit card debt. Economists expected the rising unemployment rates and recession to be met with increased debt. However, reduced spending and government supplementation flipped the expected outcome.
The Numbers Behind the Trend
Total credit card debt fell by nearly $100 billion from January of this year to the end of June, according to a report by Equifax. In previous recessions credit card debt grew, making this decrease a surprise. COVID-19 has also increased the unemployment rate, another factor that traditionally leads to an increase in overall debt. The U.S. unemployment rate reached an all-time high in April of this year at 14.7%, shown by data from the Bureau of Labor Statistics.
What Caused this Debt Decrease?
A few factors have contributed to the reduction in overall debt. Government aid, deferred payments and reduced spending due to lockdowns seem to be leading factors.
Stimulus checks have provided a boost to those who need it. This supplemental aid has allowed people to catch up on payments they would not have been able to without.
Deferred payments on mortgages and other large debts have allowed those who were previously behind to start catching up. Many loan servicers have offered a deferment on payments to relieve the financial stress brought on from the pandemic. This has been an opportunity for Americans to place themselves in a better financial position.
During mass closures, Americans were also spending less on their credit cards. Lockdown orders reduced normal spending opportunities.
Could this Trend be Short-Lived?
Because this downward trend is based largely on pandemic-related factors, it is difficult to determine if it will last. This fall will bring the end of some COVID relief programs. The months to come will show if the pandemic has changed consumer spending trends permanently.
Individual Debt Relief
Though overall credit card debt has fallen, the COVID-19 pandemic has brought financial hardship for many. Those seeking debt relief may be considering their options of filing bankruptcy. At Hoglund Law, our attorneys have over 100 years of combined bankruptcy experience. They have the expertise to guide you toward the best debt relief option for you.