The country’s collective credit card debt fell by the largest amount in more than two decades last year — thanks largely to the government’s unprecedented aid during the coronavirus pandemic.
“There's no question that government stimulus has been a godsend for cardholders,” Matt Schulz, LendingTree’s chief credit analyst, told Yahoo Money. “It's definitely not a normal thing for unemployed folks in an economic crisis to be able to pay down their credit card bills — but that's what we've been seeing.”
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Credit card balances ended 2020 $108 billion lower versus 2019, according to a new report from the Federal Reserve Bank of New York using data from anonymized Equifax credit reports. That marked the biggest year-over-year drop on records dating to 1999 when the information was first gathered.
The decline comes after the government last year sent 160 million Americans stimulus checks worth up to $1,200 per individual and $500 for child dependents and provided additional money in weekly unemployment benefits for jobless Americans through September.
Credit card debt did increase by $12 billion in the fourth quarter, the report found, potentially reflecting some holiday spending as well as a lack of remaining government aid at the end of the year. But the uptick wasn’t enough to offset the contractions seen in the prior two quarters. Balances shrunk $10 billion in the third quarter and $76 billion in the second quarter.
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The extra boost from the government plus hardship programs offered by banks also helped to prevent Americans from defaulting on their credit card obligations. The share of cardholders who were 90 or more days past due on their credit card payments was 4.12% in the fourth quarter, down from 5.32% in the same period in 2019.
“The fact that delinquencies have been as low as they are and continue to be as low is definitely attributable in a big way to government stimulus,” Schulz said. “One of the big questions is whether banks will continue to work with people as much as they have. And I would think that they probably would because it’s in their interest to keep their customers happy and try and ride this out.”
Americans also refrained from opening new credit cards at their usual pace. At the pandemic’s onset in March 2020, the volume of credit card accounts was at a six-year high of over 511 million accounts, but has yet to rebound, sitting at 505.62 million accounts. 2020 also marked the first year since 2010 that total accounts ended the year lower than the previous one.
“You can't discount the fact that people either haven't been able to spend on things that they typically want to or just haven't wanted to,” Schulz said, noting the pandemic shuttered businesses, closed travel borders, and reduced capacity at concerts and sporting events. “The reduced spending aspect of things is a really significant component.”
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If President Biden’s $1.9 trillion relief package passes — including $1,400 per person stimulus checks and increased unemployment benefits — that should help Americans stay afloat as the vaccine rolls out and COVID-19 cases continue to dip.
“There's no reason to think that people with extra government stimulus won't be able to continue to at least maintain” their current rates of spending and saving, Schulz said. “This is all about just getting people to the end of this pandemic.”