Credit card balances drop second largest amount since 1999
Card balances are low, but that doesn’t necessarily mean better economy.
U.S. credit card balances are down – path down. According to latest household debt and credit report from the Federal Reserve Bank of New York, credit card balances fell sharply in the first quarter of 2021. In fact, balances experienced the second largest decline in data history, dating back to 1999 .
Overall, total credit card balances fell $ 49 billion in the first quarter of 2021, a single-quarter drop that comes just after the drop seen in the second quarter of 2020, when lockdowns were rampant. and retail purchases virtually halted. In addition, credit card balances are still well below pre-pandemic levels, standing $ 197 billion lower than at the end of 2019.
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Weak retail sales and stimulus controls were contributing factors
Unlike the drop in early 2020, this latest drop in card balances may not be entirely due to weak retail sales. Of course, people aren’t spending as much as they were in 2019 – pandemic hesitation and unemployment is keeping people from hitting stores in droves before the pandemic.
But the people are come back there. The fourth quarter of 2020 saw a slight increase in retail spending and credit card balances, as is typically the case with vacation spending. And there were also good retail numbers in March 2021 as stimulus checks hit. However, the third stimulus payments in March may have played a double role in Americans’ low card balances.
While retail sales suggest many people are putting their stimulus checks straight into retailer coffers, cash payments mean fewer shoppers leave their purchases on their card for a long time. Additionally, some recipients with outstanding credit card debt may have used their stimulus payments to clear their existing balances rather than increasing them. On this point, it is difficult to be conclusive, because the available data does not specify the balances of new credit cards compared to existing balances.
The balance declines consistently according to income, but not according to age
Whatever the cause, it affected most households at the same rate. While consumers in areas with average annual incomes below $ 58,000 still have the highest balances – and the lowest $ 79,000 and over balances – the bumps and declines in the number of card balances have followed a similar trajectory since February 2020 for all income levels.
That said, young people certainly have larger credit card balances than their more experienced counterparts – and have been for most of last year. Data shows that cardholders between the ages of 20 and 29 have steadily increased their card balances since July 2020, which roughly coincides with the date many locks were lifted.
Card balances for those 20 and older were almost back to pre-pandemic levels in the last quarter of 2020, although even these balances saw remarkable declines in the first quarter of 2021. Since access retail has not been downplayed – if anything it has widened – the decrease in card balances for young people is likely due to the typical decline in Q4 to Q1, as well as stimulus payments intended for debt.
Balances likely to increase soon
As it stands, card balances are likely to see a sharp increase over the next few months or so. On the one hand, ever-decreasing vaccinations and restrictions make retailing even more appealing, and many people locked up for about a year are ready to head to town.
Also, there is hardly any real talk of a fourth stimulus payment at this point, and the jobs numbers are still struggling. Underemployment could very well prove to be an even bigger problem than before the pandemic – especially in areas like retail and hospitality, which are currently experiencing hiring difficulties due to stagnation salaries.
Extended unemployment benefits are also being withdrawn as governments bow to pressure from employers who do not want to raise wages. This likely means that we will not only see existing card balances increase, but no doubt there will be an increase in new card balances as people turn to their cards to make ends meet.
If you’re currently struggling with high credit card balances – or soon will be – you can check out our guide to paying off credit card debt for some basic advice on managing card debt.