Thursday, October 28, 2021

As Americans spend, credit card debt is ticking back up

NEW YORK—At the start of the pandemic, there were encouraging and surprising signs about a decline in credit card debt.

Now, that trendline is changing.

Many Americans stayed home at the start of COVID-19 and didn’t spend as much as they usually do. He also received several rounds of emergency cash assistance, which helped reduce those credit-card bills, at least temporarily.

Spending is rising — and the results are starting to show up on our monthly statements.

In fact, 42 percent, or 59 million Americans with credit card debt, say they have added to their balances since the start of the pandemic, according to a new study from personal finance site Bankrate.com.

“Things are better for some, but they are not better for everyone,” explains Ted Rossman, senior industry analyst at Bankrate.

Rossman said the elimination of stimulus checks, extended unemployment benefits and removal moratoriums do not bode well for debt management.

This trend reversal is reflected in the most recent numbers from the Federal Reserve Bank of New York. Its quarterly report on home loans and credit found that credit-card bills rose by $17 billion in the second quarter of 2021 to $790 billion nationally. This was the first rally after four consecutive quarters of decline.

Also on the north side were auto loans, $33 billion in the quarter, and mortgage loans, $282 billion. All told, this makes for a total household debt of $14.96 trillion, a quarterly increase of 2.1 percent.

Different Loans, Different Strategies

Of course, not all debt is created equal, nor should it automatically be considered a bad thing. The rise in mortgage loans can be attributed to many people buying homes in the hot real estate market — and with interest rates near historic lows, it’s not necessarily a concern for home balance sheets.

However, credit card debt is especially harmful. According to Bankrate, it can be very challenging to avoid rising balances to a certain level combined with sky-high interest on revolving loans – average rates are currently north of 16 percent. Add in late fees or missed payments, and it’s hard to break the cycle.

Those concerns are highlighted in a recent survey by real estate firm Clever. Nearly one in five with credit card debt, 18 percent, report having bills in excess of $20,000. Meanwhile, 40 percent of those with monthly balances didn’t go credit card debt-free before 2018, and 15 percent have been struggling with it for more than 15 years.

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“We also found that 57 percent of people had missed credit-card payments, and most of them were in the past year,” says Francesca Ortegren, lead researcher at Clever. “This can create a snowball effect over time, and make it very difficult to climb outside.”

Old debt can make people very depressed. A third of people with credit card debt think it will take at least a few years to pay off, and 20 percent say three years or more, according to Chatur. Most disappointing, 3 percent think it will never be possible.

charting a way out

To be sure, loan data has glimpses of good news. According to the Federal Reserve Bank of New York, even though credit card bills are back once again, the early-pandemic decline means the total amount is still less than $140 billion at the end of 2019 levels. And student loan debt actually decreased by $14 billion in the second quarter of 2021.

Meanwhile personal savings rates are still high compared to historical norms. And loan defaults and defaults are relatively minor, notes Bankrate’s Rossman – which is somewhat surprising given the length and breadth of our ongoing pandemic crisis.

What Rossman is worried about: that our early-pandemic frugality will fall by the wayside, and the urge to get out and spend money after being together for so long will reverse any progress we’ve made.

Instead, Americans should be proactive. They suggest: Take advantage of the growing number of 0 percent card balance-transfer offers, partner with nonprofit credit counselors like Money Management International or GreenPath, or pay off a higher-rate card with a lower-rate personal loan .

“It would be nice if we could have less balance as part of our future,” Rossmann says. “You don’t want to throw all that away and run those balances back up—because that’s a very expensive debt.”

by Chris Taylor

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This News Originally From – The Epoch Times

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