What Was the Average Credit Card Debt Accrued During the Pandemic?

So, what was the average American credit card debt in 2020? The answer is not as straightforward as you might think. But, stick with us on this one. 

The International Monetary Fund (IMF) called the “Great Lockdown” in March 2020 the “worst economic downturn since the Great Depression.” The organization noted how economic activity collapsed at a “magnitude and speed” that was unprecedented in our lifetimes and shared how this triggered “substantial uncertainty” about people’s ability to earn a living. 

Although the lockdowns have eased and tightened in fits and starts around the country, the pandemic has gone on for more than a year since the IMF published this ominous news. Under this all-too-real scenario, it’s easy to imagine consumers putting groceries and other essentials on their credit cards as they hunker down and worry about the future.

Therefore, you might expect to hear that the average American credit card debt in 2020, was higher than it was in 2019. In June 2019, 40% of people were already struggling to pay an expense, and half of them could, at best, pay for two month’s worth of bills if they lost their main income source. Couple that with people who became unemployed during COVID-19, and it’s natural to assume that many of them, being short of cash, used credit cards in 2020 to buy necessities. 

But, that’s not exactly what happened. According to the Consumer Financial Protection Bureau’s Making Ends Meet survey, credit card debt fell quite significantly, starting in the early months of the pandemic. This is true even when looking at the consumers whom you might have expected to be among the first to use credit to pay for their expenses.  

More specifically, the survey reported these findings about the average credit card debt, 2020, from the end of February through the end of June:

• For consumers who weren’t previously having financial challenges, their credit card debt fell by $825 (13.6%).

• For consumers who reported difficulty before the pandemic, their credit card debt dropped by $711 (17%). 

Credit reporting bureau Experian found that, overall, balances dropped in 2020 for the first time in eight years. The bureau called this a “surprising turn of events given the broader economic environment brought on by COVID-19.”

Credit card debt reached a record high in 2019 at $829 billion, but US credit card debt in 2020, dropped by 9%, down to $756 billion. This is actually the lowest composite amount in the US since 2017.

Experian also noted two other encouraging signs.Credit utilization percentages — meaning the amount of credit a consumer is using compared to how much is available in a credit line—also dropped in 2020, along with delinquencies. 

Credit Card Debt 2020: State Differences

The good news is that credit card balances dropped in all states (plus Washington DC), with an average shrinkage of 14%. But, the drop didn’t occur equally across all of them. Here are places with the highest and lowest drops:

• Washington DC: Consumers here reduced their debt, on average, by by the end of Q3 2020. This is 6% more than average.

• North Dakota:  These consumers reduced debt by at the end of Q3 2020. This is 6% lower than average.

Credit Card Debt 2020: Generational Differences

Consumers across generations reduced their credit card balances, although not at the same rate. Here are a couple of examples:

• Americans aged 75 and up (the silent generation), the highest of all generations.

• Gen Z (ages 18-23) dropped theirs by 6%.

So, what’s going on here? Why are credit card balances going down during a year that truly was unprecedented in its challenges?

Reasons for Credit Card Debt Reductions

Analysis by CNBC suggested that people have been refinancing their loans during a time of low interest rates; some are likely consolidating their credit card bills this way. Federal student loan payments are paused, which may be giving people more money to put down on their credit card balances—or at least not add to their usage. Plus, some consumers may be using federal stimulus checks and expanded unemployment checks to reduce balances. 

Looking Ahead

This downward trend in debt is encouraging, but will this be a permanent change in consumer behavior? Although no one can predict with certainty, some experts anticipate a “surge of consumer spending once more people are vaccinated, and Covid-related restrictions are lifted, which could undo some of the recent progress made toward paying down debt.” Time will tell, but that’s a possibility as friends and family members start meeting at restaurants and spending more after a long drought of being apart.

Here’s one more thing to consider. Each of these sets of stats is describing the average American credit card debt, 2020. Not everyone has been able to pay down debt, and some may have needed to add to theirs because of economic challenges. For people who feel overwhelmed or a sense of shame because of their debt, it may be especially hard to reach out for a solution.

As Brittany M. Powell, the author of The Debt Project: 99 Portraits Across America, points out, “Since shame accrues to debt as inexorably as interest, many people don’t like to talk about the topic.” Fortunately, solutions do exist.

Credit Card Debt Solutions

Ready to tackle the debt topic? Solutions can include:

• reducing your credit card interest—and  here are tips on how to achieve that goal.

• refinancing your credit card debt—and  here’s how.

• consolidating the debt

• paying off the debt using one of the following methods.

If you’ve got mounting credit card debt, Tally may be able to help. Learn more today.