Credit Card Debt in COVID-19!

Credit Card Debt in COVID-19

Credit Card Debt in COVID America. The Good, The Bad, The Ugly.

We don’t need to tell you that 2020 has been quite the year. When we gave our New Year toasts in 2019, our hopes for 2020 were pretty humble and uncreative for the most part: travel more, save money and get out of debt obviously (in case you’re new here). Fast forward to today, and 2020 has only served us with curveball after curveball. I mean, the year started off with Kobe Bryant (#RIPMamba) to Corona Virus to record unemployment, to murder hornets? … I mean where did the murder hornets go?

It’s safe to say that the amount of uncertainty in the air has been heavy, and for many Americans, 2020 just added to the already massive strain of credit card debt. In fact, 23% of U.S. adults with credit card debt have added to it during the pandemic, according to a poll by CreditCards.com. So how did we get here, and most importantly, we need to discuss how to get out of debt and on the path to financial freedom in these crazy times?

Where do we stand with COVID-19 credit card debt?

COVID-19 really shook things up this year. Looking back, 2019 was actually a pretty good year, our economy was strong, optimism was high, and consumer spending was increasing. Along with consumer spending, credit card debt increased as well…to a whopping record of $930 billion dollars in February.

Then, everything changed… the world as we knew it changed overnight, the party was over, and our confidence flew out the window. As of July, about 30 million Americans are unemployed, 28 million Americans added to their credit card balances, and millennial credit cardholders were hit the hardest. According to a survey conducted by CreditCards.com, 34% of millennials shared they went deeper into debt because of the pandemic. The survey also revealed that nearly half of American adults (47%) currently have credit card debt, up from the 43% found in early March. All of this means about 120 million Americans have debt! We as a country need to learn how to become debt-free because the prospects of things going back to normal in the next few weeks aren’t looking good.

If 23% of adults added to their debt…then how is revolving debt down?

First, what is revolving debt? According to SmartAsset.com: ‘Revolving debt usually refers to any money you owe from an account that allows you to borrow against a credit line. Revolving debt often comes with a variable interest rate. And while you have to pay back whatever you borrow, you don’t have to pay a fixed amount every month’ because you pay according to a schedule. Basically, revolving debt allows you to carry a balance month to month on your credit card with interest charges.

One interesting debt statistic from this pandemic is that revolving debt has actually gone down significantly in the past few months. CNN Business estimates revolving debt to be about $100 billion lower which is great! This is mostly due to the drastic change in consumer behavior, (i.e. going out to eat, bars, sporting events, and travel). I’m sure our articles about how to get out of debt have also resonated for many Americans as well.

To put things in perspective, before the pandemic, American households were spending about $3,000 a year on going out to eat. After the pandemic started, more than half of Americans began cooking at home, which unfortunately forced about 53% of restaurants to close, according to a Yelp report from June). As you could imagine, the travel industry also took a major hit as people couldn’t travel to their remote locations for vacations and visiting family.

Also, the uncertainty around travel has made people more mindful of their spending habits which have led to people prioritizing their debt. Some studies also showed Americans used the first round of stimulus checks to pay off some credit card debt. In addition, many credit card companies helped customers who were struggling financially by lowering interest rates, extending payment deadlines, and waiving late fees.

Another reason for the national credit card debt going down is that credit card companies may have been reducing their exposure by both writing off debt and tightening their lending standards (which could explain the $100 billion drop of revolving debt in the last few months).

So how do you keep your debt under control if COVID made it worse?

While we’re writing this, unemployment benefits are still up in the air, and we still don’t have confirmation on whether the second stimulus check will actually happen. It’s definitely a very scary time for some, and we know that for some people, their credit card is the only lifeline keeping them above water. The best advice we can give is to get ‘back to the basics’ with budgeting (link to budgeting blog). If you plan on using your credit card to supplement your income, that can put you in a much worse position.

While the pandemic has changed everyone’s lives, you can still find fun ways to save money while still doing the things you want to do. You can host an Uno Tournament and compete against your family and friends, learn a new craft, and much more. Quarantine doesn’t have to be the end of your social life either, a lot of people are doing virtual dinners, watching moves over video chat, and much more!

If you’re looking to save money on your interest payments, you can also request your credit card company defer your monthly payments and/or negotiate a lower interest rate to help you get out of debt fast.

The number one tip we can give if you MUST add to your credit card debt during the pandemic is to only use your credit card for essentials and be smart! Shopping for a quick dopamine fix may seem tempting, but it’s not the smartest thing to do and you’ll regret it later! It’s good to keep an inventory of what you have to avoid purchasing things you don’t immediately need and make a list of the things you need and go into the store or internet with a plan.

Next tip? SAVE AND PAY! Save as much money as you can, and pay as much money as possible to your credit card debt. The pandemic is an opportunity for everyone, and whether you take advantage of that opportunity is completely up to you. This pandemic has forced people to stay home which has reduced a lot of people’s monthly expenses. If your spending has gone down, try to pay as much as you can to your credit card debt without compromising yourself or your family’s financial situation. While having money in the bank is a very good idea, being charged 16% to 24% interest on a credit card is a horrible idea.

Where do we go from here? Yofii is here to help

We know times are tough, and with everything going on, it’s even tougher to stay on top of your finances. Yofii helps you take the guesswork out of getting out of debt. We pride ourselves on being a resource for education, and we love providing you with easy tips designed to help you get a good understanding of your credit card debt. Learning how to get out of debt doesn’t have to be hard, in fact, we wrote our new eBook to teach Americans just that!