The coronavirus crisis has in many ways paved the way for better budgeting.
Consumers are paying off their debts and saving more than they have done in decades. Many are taking advantage of low interest rates to refinance and cut their monthly bills.
Federal stools, such as incentive checks, extended unemployment benefits, and a longer pause in loan repayments, have even given some a chance to catch up on arrears.
In total, Americans paid back nearly $ 83 billion in credit card debt by 2020 – a record, according to a Credit Card Debt Study from personal finance site WalletHub.
That’s only “the second time in the past 35 years we’ve even closed the year because we had less credit card debt than we started with,” said Jill Gonzalez, an analyst at WalletHub. (The first time was in 2009, in the wake of the Great Recession.)
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Late last year, the average household credit card balance had fallen to $ 8,089, WalletHub found.
Credit cards are one of the most expensive ways to borrow money. Card rates are now on average at 15.99%, slightly below a record high of 17.85%.
Many experts predict that if people are vaccinated again and Covid-related restrictions are lifted, consumer spending could soar, which could undo some of the recent progress in debt repayment.
According to the National Retail Federation, economic indicators point to potentially record retail sales growth in 2021.
Consumers have “a lot of purchasing power” that will be combined with pent-up demand to provide “growth accelerators,” the trade association said.
The $ 1.9 trillion bill for emergency economic aid and stimulus measures would provide additional stimulus. The Democrat-run house plans to vote on the senate legislation on Tuesday so President Joe Biden can sign it into law early in the week.
“A burst of short-term spending is inevitable,” Gonzalez said.
“The question is how the pendulum will swing in 2022 and beyond,” she added. “I hope consumers will internalize the lessons learned during the pandemic and demonstrate renewed frugality.”
WalletHub predicts that consumers will add about $ 50 billion in credit card debt by 2021 alone. The personal finance site used data from TransUnion and from the Federal Reserve and the Bureau of Labor Statistics.
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