Using coronavirus relief to pay down credit cards
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The Federal Reserve Bank of New York released new numbers on consumer debt Thursday showing that we’re borrowing less.
Household debt fell in the second quarter of this year — the first decline since 2014. But our lower debt load appears to be the result of government pandemic relief programs. And some of them, like the $600-a-week supplemental unemployment benefit, have expired.
The report says credit card debt was down by $76 billion in the second quarter, the steepest decline in card balances since the New York Fed started tracking them. One reason? People aren’t going out as much.
But Jay Shambaugh, professor of economics at George Washington University, said there’s something else going on.
“Many people don’t put their money in a savings account — they don’t have an active savings account,” he said. “What they have is a credit card balance that fluctuates. And if they get a jolt of income, they’re going to pay down the balance.”
That jolt of income? It was the $1,200 relief checks and the $600-per-week unemployment supplement — which just expired. AnnElizabeth Konkel, an economist at the job site Indeed, said the $600 weekly payments were roughly 5% of all disposable personal income in June. To make ends meet without them?
“At first, it would be digging into one’s savings and after that probably turning towards the credit cards,” she said.
But credit cards may not be an option. Joelle Scally, a senior data strategist at the New York Fed, said banks have cut their credit card customers’ credit limits. She added that low-income consumers may have as little as $150 of available credit to begin with.
“For lower-income borrowers, they really may not have very much credit at all to draw on,” she said. “This reduction in credit limits may actually affect them.”
So people in precarious financial situations are caught between the end of some benefits and having no — or very little — credit to turn to.
COVID-19 Economy FAQs
Millions of Americans are unemployed, but businesses say they are having trouble hiring. Why?
This economic crisis is unusual compared to traditional recessions, according to Daniel Zhao, senior economist with Glassdoor. “Many workers are still sitting out of the labor force because of health concerns or child care needs, and that makes it tough to find workers regardless of what you’re doing with wages or benefits,” Zhao said. “An extra dollar an hour isn’t going to make a cashier with preexisting conditions feel that it’s safe to return to work.” This can be seen in the restaurant industry: Some workers have quit or are reluctant to apply because of COVID-19 concerns, low pay, meager benefits and the stress that comes with a fast-paced, demanding job. Restaurants have been willing to offer signing bonuses and temporary wage increases. One McDonald’s is even paying people $50 just to interview.
Could waiving patents increase the global supply of COVID-19 vaccines?
India and South Africa have introduced a proposal to temporarily suspend patents on COVID-19 vaccines. Backers of the plan say it would increase the supply of vaccines around the world by allowing more countries to produce them. Skeptics say it’s not that simple. There’s now enough supply in the U.S that any adult who wants a shot should be able to get one soon. That reality is years away for most other countries. More than 100 countries have backed the proposal to temporarily waive COVID-19 vaccine patents. The U.S isn’t one of them, but the White House has said it’s considering the idea.
Can businesses deny you entry if you don’t have a vaccine passport?
As more Americans get vaccinated against COVID-19 and the economy continues reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.
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