When the COVID-19 pandemic began early in 2020, many of us hoped that it would be over quickly and that the effects of the crisis would be short-lived. That has proven not to be the case, and one area where the impact has been profound is in the way Americans use their credit cards.
A recent article on Money.com revealed the results of a joint survey conducted with Morning Consult about how people are using (or not using) their credit cards. Here’s what you need to know.
People Are Spending Cautiously
In March, when the pandemic had barely started, many Americans cut back their spending significantly due to widespread economic uncertainty. Consumer confidence reached an all-time low in April. As of October, people still aren’t feeling confident.
One big reason for the lack of confidence is job uncertainty and unemployment. The survey found that 19% of Americans have lost jobs since February 15 and another 33% have lost income.
However, spending has gradually increased as the pandemic has stretched on. Consumer spending in September was higher than in any month since March.
Credit Card Spending is Common
It comes as no surprise to us that credit card spending as a percentage of total spending has increased. Many Americans are doing all or most of their shopping online, including things like grocery shopping, that we usually do in person.
The survey revealed some interesting things about credit card usage:
- 70% of Americans say they have no plans to cancel or get rid of credit cards as a result of the pandemic
- 38% of Americans say they use credit cards for every purchase
- Only 2% of Americans say they never use a credit card
- 29% of Americans say they are using their credit cards more than they were before the pandemic
- People who are unemployed or have lost income are more likely to use credit cards for every purchase than people whose jobs have not been affected by the pandemic
Clearly, credit cards are still important and provide an easy way to shop remotely when people prefer not to visit brick-and-mortar stores.
Credit Card Debt is a Concern
Despite the fact that spending has increased in recent months, consumers are still worried about credit card debt – 25% said that debt is a daily source of stress.
While any debt can be stressful, 11% of respondents said that credit card debt was “very stressful.” Bradley Klontz, a certified financial planner and financial psychologist, believes that the high interest rates on credit cards contribute to consumer stress.
People with credit scores between 620 and 659 were most likely to be paying interest on their credit cards.
Total Credit Card Debt is Down
The prevalence of stress related to credit card debt has manifested itself in an encouraging way: since the start of the pandemic, consumers have made a dent in paying down their credit card debt.
According to the Survey of Consumer Finances, 45% of all Americans had some credit card debt in 2019. The average per family was $2,700 and coming into 2020, the total credit card debt carried by Americans was a whopping $1.09 trillion.
However, since the pandemic started, Americans have paid down their debt by $99.5 billion, bringing the total owed to under one trillion dollars for the first time since 2017.
Many Americans used part of their stimulus payments from the CARES Act to reduce their debt.
Increased Discretion Regarding Credit Cards
Another key impact of the pandemic is that consumers have become more discerning when it comes to using their credit cards. Only 6% of Americans said they would get a new credit card to cover an unexpected expense, while almost half said they would prefer to withdraw money from their emergency savings.
The heightened awareness of debt has also led to strong preferences when comparing new credit cards. The most important issues were:
- No annual fee (75%)
- Cash back rewards (71%)
- Low interest rates (67%)
- No interest period (60%)
- On-time payment rewards (58%)
Travel rewards were favored by only 34%, which isn’t surprising given how few people are traveling during the pandemic.
Tips for Using Credit Cards Responsibly
Let’s close with some advice to help you make sense of the information in the article Economic uncertainty is still high and it’s important to be smart and cautious about credit card debt.
- If you use your credit card for regular purchases (groceries and household supplies), pay it in full every month to avoid interest charges.
- If you can afford to do it, pay more than your minimum monthly payment. If you can’t afford to pay more on every card, try to do it on the card with the highest interest rate.
- Consider consolidating your debt on a low-interest card if you can qualify for one. Your monthly payments will be lower if you consolidate and you’ll be able to get out of debt more quickly than you would if you kept cards with high interest rates.
- Read the fine print when comparing new credit card offers. Pay attention to annual fees and introductory no-interest periods. Make sure you understand when you will start to accrue interest.
- Choose a cash back or rewards card to put your credit card to work for you. Cash back offers the most flexibility but points can be useful, as well.
- If you don’t already have an emergency savings account, it’s time to create one. Even if you set aside only a small amount each month, you can earn interest on it and build your savings over time.
There are a lot of practical reasons to rely on credit cards as the pandemic continues and many people are avoiding stores and public gatherings. The key is to use them responsibly, and to make sure you read the fine print to avoid high interest rates and fees.
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