Credit cards saw a record setting reduction in balances during the pandemic, with total outstanding credit card debt dropping over 10% from Q4 2019 to Q4 2020. This trend is counter intuitive to what you may have expected during an economic recession where unemployment hit all-time highs. But this recession is different, disproportionally affecting lower wage earners. Consumers who were lucky enough to remain employed had more cash in their pocket due to less discretionary spending and government stimulus and used that extra money to pay down credit card balances. As we start to see the light at the end of the tunnel with the pandemic it is likely that credit card balances will increase. Where are three reasons why.
As more and more Americans are getting vaccinated, their confidence to resume pre-COVID activities will grow, increasing discretionary spending. Increased vaccinations along with lower COVID-19 case counts allow for more states to remove COVID-19 restrictions and fully open back up. Economists are predicting a boom to the economy as we come out of the recession. Consumers are ready to spend their money, travel to see family, take that vacation and more. This pent up demand may create a time of economic growth, and credit card balances are expected to grow.
With increased consumer spending, the economy will likely continue its recovery. Aiding in the economic recovery is the stimulus bill, the 6th COVID relief package passed, which provides Americans, if eligible, stimulus checks of $1,400. The bill contains additional relief efforts to buoy the economy. With an improving economy, businesses can begin to hire again. Unemployment rates are improving and should continue to fall as we begin our “return to normal”. With more consumers in the work force and an economy rebounding, credit card balances will likely rise.
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