Categories: Debt

Consumers Use Stimulus Money To Pay Down Credit Card Debt

With one in five workers collecting jobless benefits thanks to the pandemic, banks braced for increased credit card debt and delinquencies as families struggled to pay bills.

It turns out, financial institutions report missed consumer payments and a request for more credit have not materialized, The Wall Street Journal (WSJ) reported.

From February through June, U.S. total outstanding credit card debt fell by $100 billion, or 11.4 percent, according to Equifax Inc., the Atlanta-based global consumer credit reporting agency.

April recorded the largest monthly drop in revolving credit on record, while May was the second-largest, according to Federal Reserve Board data.

Applications for personal loans were off by a third in mid-May compared with the beginning of March, Equifax found.

The decline in credit card debt is not limited to the U.S.

During the same period, such debt has dropped by 11 percent in Canada, 14 percent in the United Kingdom and 17 percent in Australia, The WSJ reported.

While millions of cardholders signed up for grace period deferment programs because they anticipated being unable to make their monthly minimum payments, they have not been used, lenders said.

Giant credit-card issuers such as Capital One Financial Corp. and Synchrony Financial said many of their customers who entered deferment programs in the spring had exited by June.

It helped that Congress enacted the CARES Act, which provided $1,200 per taxpayer, $500 for dependents and 16 weeks of $600 federal unemployment compensation in addition to what states were offering.

“We’re not seeing consumers increase credit card balances; in fact, they’re continuing to pay down balances,” Peter Maynard, senior vice president at Equifax, told the newspaper. “They’re using the injection of government stimulus, quite frankly, to put themselves in a better position.”

In contrast, the 2008 financial crisis saw delinquencies rise when the unemployment rate increased.

The data comes as the House and Senate fight over the size and scope of the next stimulus package: $3 trillion proposed by Democrats, $1 trillion from the GOP.

Alexis Smith, a 24-year-old college administrator, told The WSJ she was furloughed from her job in March when the school sent students home. She received $900 a week in unemployment benefits, nearly twice her normal salary. She’s back to work.

The extra money, she said, allowed her to start paying off $10,000 in credit card debt.

“I’m just not using my credit cards anymore,” Smith told the newspaper. “I want to ensure my credit score is good.”

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NEW PYMNTS DATA: HOW WE SHOP – SEPTEMBER 2020

The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.