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.
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.
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:
Clearly, credit cards are still important and provide an easy way to shop remotely when people prefer not to visit brick-and-mortar stores.
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.
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.
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:
Travel rewards were favored by only 34%, which isn’t surprising given how few people are traveling during the pandemic.
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.
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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