Many American credit card holders feel they’re in danger of missing payments within the next few months if the COVID-19 pandemic lingers, according to a CreditCards.com survey.
The new survey, conducted in mid-July, reveals 61% will be affected if they’re unable to work now or in the future, 56% if there is no more government stimulus money and 26% when the $600 weekly supplemental unemployment benefits end.
Millennials are the most concerned about being in debt – 87% said they won’t be able to make minimum payments if they’re unable to work, 79% won’t if COVID cases continue to surge, 72% if there’s no more government stimulus and 47% when the supplemental unemployment benefits end.
“So far, I have been pleasantly surprised how few people have fallen behind on their payments during the pandemic,” said CreditCards.com industry analyst Ted Rossman.
But he cautioned that these statistics have been aided by a tremendous number of government stimulus and lender hardship programs.
The lack of delinquencies to date may be artificial, and when the stimulus stops, the surge in delinquencies will have been delayed, not avoided.
“We need to stay tuned because Congress and the White House are currently working on another round of potential stimulus – this situation could change within the next couple weeks,” Rossman said.
See related: Fed says more fiscal stimulus is needed
Credit card debt poll: Key findings
Here’s what else our poll found about credit card debt in the pandemic:
- Millennials are adding the most debt: Twenty-five percent of credit card debtors have taken on more credit card debt as a direct result of the pandemic – a figure that rose from 23% in mid-April – and 39% of millennial credit card debtors have added to it, up from 34% in mid-April.
- More than half of adults have personal debt: Sixty-six percent of U.S. adults have personal debt: 36% have credit card debt, 25% have mortgages, 24% have auto loans or leases and 14% have student loans. Some of these figures are down a bit from CreditCards.com’s January 2020 debt-free living poll (70% had personal debt, 41% had credit card debt, 26% had mortgages, 26% had auto loans or leases and 16% had student loans).
- Despondency among debtors: Survey respondents’ optimism about getting out of debt has declined slightly from our January survey – 9% of debtors expect to die in debt and 8% don’t know when they’ll be debt-free, compared with 7% for each in the prior survey. In a 2019 survey, 25% of debtors expected to die in debt, and in 2018, 30% said the same. The most recent survey revealed that 43% of debtors expect to be debt-free within five years, compared with 45% in the January survey.
The survey of 2,372 U.S. adults was conducted online between July 15-17, 2020. See survey methodology.
Pessimism about getting out of debt is relatively low
Martin Lynch, compliance manager and director of education at Cambridge Credit Counseling, said he thought the number of people who said they would likely die in debt is low.
He expected that with the increased debt being taken on and no foreseeable end to the pandemic, many more people would be pessimistic about carrying debt to the grave.
“It might be a case of whistling past the graveyard, or it may be a sign that American consumers are resolving to resume paying down debt as soon as this crisis passes,” Lynch said.
Credit card debt has gone down
Most people are spending less during the pandemic, and if they can afford it, they’re making special efforts to pay down debt, Rossman said.
It’s basically like a New Year’s resolution on steroids, because they’re concerned about the economy and job security, he added.
Credit card spending was down about 40% year-over-year in late March and early April, and it’s still down about 10% now, per JP Morgan Chase.
And Rossman also noted that these trends have combined to roll credit card debt back three years – the total fell about 10% from February 2020 to May 2020, according to the most recent Fed data on consumer credit.
Still, the gap between the haves and have-nots is widening, Rossman pointed out.
“While a lot of people are paying down credit card debt, others are in a tough spot if they don’t have enough money coming in and alternatives are dwindling,” he said. “It’s hard to get a new job right now, and the market for balance transfer cards has dried up.”
And Lynch pointed out that that federal and private student loan payment holidays have helped millennials stay afloat to this point, but those forbearances are also temporary – these line items will be back in borrowers’ budgets by the end of September.
The $600 supplemental unemployment benefit expired in July, which could leave a lot of workers in dire straits, Lynch said.
Millennials have been hard hit by job loss
Maureen Kelley, a certified financial therapist practicing in Denver, said these statistics accurately reflect some of the emotions her clients have been sharing.
Many people have been thoughtful and diligent in managing their debt during this period – generally, stimulus checks are being used to supplement and sustain household cash flow, she said.
With ongoing uncertainty, anxiety is high – mainly from millennials who have been impacted by job loss, Kelley said.
For example, one of her clients, a 38-year-old hospitality worker, had intentionally taken control of her finances.
At the end of 2019, she made a financial plan, established a budget, reduced debt and set realistic goals that included improving her credit score and making a commitment to herself to change her spending behavior.
But she’s been out of work since March. Now she’s receiving unemployment checks and is highly anxious over what the next weeks and months will bring.
The client is extremely frustrated that all her hard work will be undone and she’ll be back where she started over a year ago.
Even worse, she fears she may have no choice but to put more expenses on credit cards and incur more debt.
Remember that you’re in control of your money
Individual reactions to financial stress differ greatly – when fear and anxiety are high, some people avoid and deny the issue, and in worst-case scenarios, engage in catastrophic thinking, Kelley said.
Those who weather the storm successfully have a few things in common, according to Kelley: They take control of the small things, are aware of their spending, seek guidance from credit card companies or advisors and keep a positive money mindset.
Even through uncertainty, they choose to not get bogged down by thoughts of never getting out of debt and know that this will pass.
“It is important to believe that you are in control of your money – it is not in control of you.”
Millennials might drive credit card debt accumulation
According to the Fed, the first quarter of 2020 saw near-record pay-downs of credit card accounts – a remarkable statistic given the high amount of debt taken on in 2019, Lynch said.
“The pay-down trend was brought to an abrupt halt by the pandemic, of course, which is why I think the increase from 34% to 39% is a harbinger of what we’ll see through year’s end,” he added.
Lynch believes we’ll easily surpass the $76 billion in new credit card debt taken on in 2019.
He also thinks that millennials in particular will be driving credit card debt accumulation because they have the most complicated budgets.
For instance, Lynch said, they may have just purchased a home but have little ebquity. Many are still paying for childcare or have student loan balances, and some may have begun to care for aging or ill parents.
“The list of budget demands goes on and on for this demographic, and they aren’t old enough to have built enough savings to withstand anything like the economic hit they’re taking right now,” Lynch explained.
Pay your debt down faster
If you’re in credit card debt it’s not the end of the world.
There are plenty of ways to pay it down faster – here are some tips to help:
- Try to negotiate a lower interest rate with your card issuer.
- Consider getting a balance transfer card with a 0% intro APR and transferring your balances onto it – then, make sure you pay off the balance before the interest rate kicks in.
- If you don’t want another card, pay off your highest-interest card first with extra cash and make the minimum payments on your other cards.
- Try to pay cash for purchases instead of using your cards.
- Create a budget to help you cut out unnecessary expenses.
CreditCards.com commissioned YouGov Plc to conduct the survey. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,372 adults, including 1,230 adults with personal debt. The survey was conducted online from July 15-17, 2020.