Home Pay off As Americans Spend, Credit Card Debt Grows

As Americans Spend, Credit Card Debt Grows

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Mastercard Inc. credit cards are shown in this photo illustration taken on December 8, 2017. REUTERS / Benoit Tessier / Illustration / File Photo

NEW YORK, September 27 (Reuters) – As the pandemic began, there were encouraging and surprising signs of declining credit card debt.

Now this trend line seems to be changing.

Many Americans stayed at home during the onset of COVID-19 and did not spend as they usually do. They also received several rounds of emergency cash aid, helping to reduce those credit card bills, at least temporarily.

Expenses are increasing and results are starting to show up on our monthly statements.

In fact, 42% of people with credit card debt, or 59 million Americans, say they have increased their balances since the start of the pandemic, according to a new study from personal finance site Bankrate.com.

“Things are better for some, but they are not better for everyone,” said Ted Rossman, senior industry analyst at Bankrate.

The end of stimulus checks, increased unemployment benefits and the moratorium on evictions do not bode well for debt management, Rossman added.

This trend reversal is reflected in the most recent figures from the Federal Reserve Bank of New York. Its Quarterly Household Debt and Credit Report found credit card bills increased by $ 17 billion in the second quarter of 2021, to reach $ 790 billion nationally. This was the first increase after four consecutive quarters of decline.

Auto loans, $ 33 billion in the quarter, and mortgage debt, $ 282 billion, also headed north. In total, this represents total household debt of $ 14.96 trillion, a quarterly increase of 2.1%.

DIFFERENT DEBTS, DIFFERENT STRATEGIES

Of course, not all debt is the same, nor should it automatically be viewed as a bad thing. The increase in mortgage debt can be attributed to the fact that many people are buying homes in a booming real estate market – and with interest rates nearing all-time lows, this isn’t necessarily a concern for everyone. household balance sheets.

Credit card debt is particularly pernicious, however. It can be very difficult to escape it as balances reach a certain level, combined with extremely high interest on revolving debt – average rates are currently north of 16%, according to Bankrate. Add late fees or missed payments, and the cycle is hard to break.

These concerns are highlighted in a recent investigation by real estate company Clever. Almost one in five people with credit card debt, 18%, report having bills over $ 20,000. Meanwhile, 40% of those with a monthly balance have been out of credit card debt since before 2018, and 15% have struggled with it for over 15 years.

“We also found that 57% of people had missed a credit card payment, and the majority of them had in the past year,” said Francesca Ortegren, principal researcher for Clever. “It could snowball over time and make the climb much more difficult.”

Chronic debt can make people pretty gloomy. A third of those with credit card debt think it will take at least two years to pay it off, and 20% say three years or more, according to Clever. Most depressing of all, 3% think it will never be possible.

PLOT AN OUTPUT

Certainly, there are glimmers of good news in the debt data. Even though credit card bills are on the rise again, the declines at the start of the pandemic mean total amounts are still $ 140 billion below levels at the end of 2019, according to the Federal Reserve Bank of New York. . And student loan debt actually declined in the second quarter of 2021, by $ 14 billion.

Meanwhile, personal savings rates are still high by historical standards. And defaults and defaults are relatively small, notes Rossman of Bankrate – which is somewhat surprising, given the length and scale of our ongoing pandemic crisis.

What Rossman is worried about: that our frugality at the start of the pandemic will fall apart, and that the urge to go out and spend after being locked up for so long will reverse any progress we’ve made.

Instead, Americans should be proactive. He suggests: take advantage of the growing number of 0% card balance transfer offers, partner with nonprofit credit counselors like Money Management International or GreenPath, or pay off high rate cards with a personal loan. at lower rate.

“It would be nice if we could keep lower balances as part of our future,” Rossman said. “You don’t want to throw it all away and put those balances up – because it’s a very expensive debt.”

Editing by Lauren Young and Diane Craft Follow us @ReutersMoney or on http://www.reuters.com/finance/personal-finance.

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