Americans whittled down credit card debt and paid their bills on time more often during the pandemic, according to new data, thanks largely to government and lender largess and curtailed spending.
“The ongoing financial support for households, limited ability to spend the same during the pandemic as prior to it, and the widespread availability of payment relief for borrowers have led to lower credit card balances and much lower delinquencies than we’d expected this time last year," Greg McBride, Bankrate’s chief financial analyst told Yahoo Money.
Between March 2016 and March 2020, the country’s collective credit card loans or balances grew by 29%, but those balances dropped after the pandemic’s arrival and now sit 13% below the pre-pandemic high, according to an analysis of Federal Reserve Bank of St. Louis data by Nicholas Colas, cofounder of DataTrek Research.
That works out to a reduction of $112 billion, or $350 per individual American, Colas found.
For those who carried credit card debt, a separate study by LendingTree found that their average balance fell 10.4% from $8,178 in March of last year to $7,324 in February this year — a difference of $854. This figure hit a low in November at $7,067, before ticking up.
Delinquencies are also at a nearly 20-year low, sinking to 2.02% in the third quarter and then inching up to 2.12% in the fourth quarter, Colas found. The data shows recession-era averages tend to hover between 4% and 6% and climbed as high as 6.77% in 2009 after the financial crisis.
Part of the drop in debt and delinquencies is to the goodwill and leniency lenders have offered consumers during the economic fallout, including forbearance and frozen interest rates, McBride said.
“Credit card delinquencies remain low in part due to the flexibility to make minimum payments [and] the availability of payment relief options for borrowers experiencing financial disruption,” McBride said.
But those hardship or forbearance programs are playing less of a role, according to Colas. The “peak of that activity” was in the second quarter last year, Colas wrote in his analysis.
For instance, he noted that JP Morgan Chase’s fourth-quarter earnings presentation showed that outstanding credit card debt with payment deferrals dropped from $4.3 billion in the second quarter to just $368 million in the third quarter and $264 million in the fourth quarter.
Government's stimulus injection
The other — and probably bigger — reason why Americans are feeling flush is government aid. One in 4 Americans who got stimulus checks used them to pay down debt, McBride said, noting previous Bankrate survey results.
In the spring, the government distributed $1,200 checks to qualifying Americans, plus $500 for each child dependent under 17. Another round of $600 payments — with $600 for child dependents — went out in January, while a third round — $1,400 per person and per dependent — is currently being distributed.
The government also broadened unemployment benefits to bolster jobless Americans by offering benefits to those typically shut out of unemployment insurance like contractors, lengthening the number of weeks benefits could be collected, and providing an extra weekly amount to regular benefits. In many cases, workers finally received a living wage, while others were able to boost their savings in the summer.
Since the pandemic has made it more difficult to spend on dining out and travel, the decreased spending has also created more breathing room in household budgets.
Read more: 6 ways to boost your credit score in 2021
Springtime retail spending is projected to surge thanks to more stimulus support compounded with a “sky-high” household savings rate of 21%, according to Colas. The rate has come down and leveled off from April 2020’s high of 34%. Add in the effects of lower credit card balances and an improving job market and that "does bode well for continued low levels of delinquency,” McBride said.
“The question now becomes whether or not the American consumer really lets loose on spending in the months ahead,” he said, “and starts to run up the credit card balances again.”