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Early in the pandemic, fewer Americans paid their credit card bills late

Justin Ho Jan 26, 2021
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Last year's federal relief payments contributed to American households' ability to pay down their credit card obligations in the second quarter. Violeta Stoimenova via Getty Images
COVID-19

Early in the pandemic, fewer Americans paid their credit card bills late

Justin Ho Jan 26, 2021
Heard on:
Last year's federal relief payments contributed to American households' ability to pay down their credit card obligations in the second quarter. Violeta Stoimenova via Getty Images
HTML EMBED:
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Credit card delinquencies hit the lowest level on record in the second quarter of last year, just as the pandemic was settling in, according to a report from the American Bankers Association.

Delinquencies stayed low during the third quarter, too. The report found that they fell, in part, because people used government relief funds to pay off their bills.

Rob Strand, senior economist with the American Bankers Association, said it also helped that credit card balances were already falling.

“Consumers have become much more careful about their spending,” he said.

According to the New York Federal Reserve, that trend started at the beginning of 2020.

“That is what you kind of want to see in the context of a healthy consumer sector,” said Tim Quinlan, senior economist with Wells Fargo Securities.

The thing is, Quinlan said, we shouldn’t get too excited when fewer people are delinquent on their credit card bills. That’s because credit card balances are a relatively small part of overall household debt.

“It’s the smallest overall category, much smaller than mortgages, and a little bit smaller than auto loans and even student loans,” Quinlan said.

And the people paying off their bills last year don’t represent the entire economy, said Teresa Ghilarducci, an economist at the New School for Social Research.

“Having debt on your credit card is a middle-class phenomenon,” she said.

People with high incomes, she said, tend to have low balances.

On the other hand, “poor people have a hard time getting access to a credit card. So they’re not fully banked,” Ghilarducci said.

Some of the most troubling forms of debt right now, she said, are student loans and the debt many renters owe their landlords. The government has deferred those payments for now, but “those arrears are mounting.”

“So we are seeing a situation where poor people have a lot more accumulated debt that’s just been built up,” Ghilarducci said, adding that in the long run, student loans and rent will be much bigger hurdles than the country’s credit card debt.

COVID-19 Economy FAQs

So what’s up with “Zoom fatigue”?

It’s a real thing. The science backs it up — there’s new research from Stanford University. So why is it that the technology can be so draining? Jeremy Bailenson with Stanford’s Virtual Human Interaction Lab puts it this way: “It’s like being in an elevator where everyone in the elevator stopped and looked right at us for the entire elevator ride at close-up.” Bailenson said turning off self-view and shrinking down the video window can make interactions feel more natural and less emotionally taxing.

How are Americans spending their money these days?

Economists are predicting that pent-up demand for certain goods and services is going to burst out all over as more people get vaccinated. A lot of people had to drastically change their spending in the pandemic because they lost jobs or had their hours cut. But at the same time, most consumers “are still feeling secure or optimistic about their finances,” according to Candace Corlett, president of WSL Strategic Retail, which regularly surveys shoppers. A lot of people enjoy browsing in stores, especially after months of forced online shopping. And another area expecting a post-pandemic boost: travel.

What happened to all of the hazard pay essential workers were getting at the beginning of the pandemic?

Almost a year ago, when the pandemic began, essential workers were hailed as heroes. Back then, many companies gave hazard pay, an extra $2 or so per hour, for coming in to work. That quietly went away for most of them last summer. Without federal action, it’s mostly been up to local governments to create programs and mandates. They’ve helped compensate front-line workers, but they haven’t been perfect. “The solutions are small. They’re piecemeal,” said Molly Kinder at the Brookings Institution’s Metropolitan Policy Program. “You’re seeing these innovative pop-ups because we have failed overall to do something systematically.”

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