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Credit Card Debt Plummets Amid COVID

Credit Card Debt

A painfully slow economic recovery and elevated unemployment, combined with an abrupt end to government aid and no new stimulus in sight has Americans cutwith the end of government’s aid, has caused Americans to significantly cut back on their borrowing. 

According to the newest Federal Reserve figures, consumer borrowing unexpectedly fell in August as credit card balances declined for a sixth consecutive month. 

Total credit card debt decreased by $7.2 billion in the month of August after an upwardly revised $14.7 billion gain in July. It also represents the first decline since a $12-billion plunge in May.

Compared with July, revolving debt fell by $9.4 billion in the category that covers credit cards, the sixth decline in that area starting with a $25.4-billion drop in March.

But auto and student loans have defied that gravity, with the combined category rising by $2.2 billion in August, its fourth gain after its first decline in April.

The $2.2 trillion distributed by the government under the CARES Act passed in March is already spent. A $600-a-week federal benefit expired more than two months ago and the sequel of government aid any time soon is now unlikely.

According to new research by a team of economists from four American and European universities, the majority of the money from the first stimulus was spent on rent and bill payments, with extra for food and personal care.

Earlier this week, President Donald Trump called off negotiations on another coronavirus relief package and rescheduled them for after the November election.

Just hours prior, Federal Reserve Chairman Jerome Powell warned that the country’s financial recovery was in danger of derailing unless the government released more aid for businesses and households.

While savings hasn’t really caught on, even in a time of crisis, when it comes to credit cards, the evidence is mounting that habits are truly changing. 

According to a recent survey by Money and Morning Consult, 70% of Americans have no plans to cancel or close existing credit cards because of the pandemic. Indeed, 38% said it was the only means for making a purchase at present, including 29% who said they were using credit cards more than previously for food and personal care items. They’re not spending more--they’re spending differently. 

So they haven’t kicked the habit--far from it. But they are handling payments and using their cards differently because credit card stress is taking its toll. 

Over 50% said they have put money towards debt or plan to do so to pay off credit cards or other loans. And an overwhelming majority have been more carefully educating themselves on the amount of interest they are paying, how that can change, and how it all affects credit scores. One of the biggest lessons learned has been that 0% interest isn’t 0% interest forever, and the real pain starts when that ends.  

By Michael Kern for Safehaven.com 

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