US Consumers Pay Down $10B In Credit Card Debt In Q3

U.S., consumers, credit cards, car loans, mortgages, pandemic

Americans paid off $10 billion in credit card debt in the third quarter (Q3) of 2020, but borrowed more for car and housing loans, according to a report in the Wall Street Journal (WSJ) citing the Federal Reserve Bank of New York.

This follows a record $76 billion drop in Q2 credit card debt, as people used COVID-19 stimulus money and pandemic unemployment to pay down financial obligations. According to the Fed’s latest quarterly report on household debt and credit, overall consumer debt hit $14.35 trillion, up $87 billion, a 0.6 percent increase over Q2.

Mortgage debt hit $9.86 trillion, up $85 billion, with new housing and refinancing loans totaling $1.05 trillion, the second highest since 2000, the Fed’s report indicated. Auto loans hit $1.36 trillion, up $17 billion. Student loans reached $1.55 trillion, up $9 billion. 

“Mortgage originations, including refinances, continued on their upward trend as homeowners continue to take advantage of the low interest-rate environment,” Donghoon Lee, research officer at the New York Fed, said in the report, which tallied numbers through Sept. 30.

Non-housing balances — credit cards, auto loans, student debt — are up $15 billion. Overall delinquencies were up 3.4 percent, but down 0.2 percent from Q2. Bankruptcies are at a historic low and foreclosures dropped to 16,000, down from 24,000 in Q2 and 75,000 in Q1. About 6.5 percent of student debt was more than 90 days late. 

Lee added that outstanding balances and delinquencies are “largely stable,” crediting the “positive impacts of temporary relief” from the CARES program and other lender initiatives.

Credit inquiries over the past six months — a sign of credit demand — was down slightly to 122 million. The number of new accounts being opened dropped by 8 million accounts to 195 million, a smaller decrease than in the previous quarter.

August was the six month in a row that saw a drop in consumer credit card balances, the lowest level since 2017. Interest rates are also down, with a four-year car loan rate at roughly 4.98 percent compared to 5.39 percent in 2019.

Credit card interest rates were also down, averaging about 14.58 percent, compared with 15.05 percent in 2019.