While the pandemic has ravaged parts of our economic fabric and taken a tragic health toll in the U.S., it is interesting to note…
that recent studies revealed a significant decrease in consumer debt during this health crisis. Recently appearing on “Mornings with Maria,” Creditcards.com industry analyst Ted Rossman indicated the consumer has turned cautious and may now be shying away from swiping their credit cards as often as pre-pandemic times.
So, to what extent has the decline of credit card borrowing fallen since the onset of COVID-19?
This past December, the Federal Reserve mentioned a decrease of 6.7% related to credit card borrowings. Furthermore, an 11% decrease in outstanding balances on credit cards has transpired since February 2020, just before the start of the pandemic’s surging onslaught.
With the data mentioned above, what implications can be draw from the reduction in credit card balances? Foundationally, it is well-accepted that the pandemic has altered daily lifestyles and created in part a “new normal,” which may be a key driver in less consumer debt.
It is hypothesized this new or temporary norm has played a major role in slowing a large portion of consumer spending in various industry sectors such as hospitality, restaurants, bars, sports venues, salons, and various entertainment venues. During periods of shelter restrictions nonessential businesses have struggled to survive due in part to the limitations imposed by social distancing and general pandemic related health concerns.
Today, it appears Americans have or are currently adjusting both their spending habits and lifestyle to adopt pandemic related measures. The credit bureau reporting Experian Consumer Sentiment Index reports that 32% of U.S. consumers are now cutting back on their usual spending habits.
Consumer debt frequently fluctuates as consumption patterns change—particularly when consumer expenditures decrease. The trend in debt reduction is now clear, with credit statistics indicating that since the start of the pandemic, customer use of most personal forms of credit are currently running at a much slower pace.
Unfortunately, the overall reduction in personal debt has not been shared by all segments of society. For the U.S. citizens that are unemployed or lost their business amidst the pandemic, their consumer debt has likely increased. The economic tail associated with the pandemic has created a widespread financial strain felt around the globe. As a result, more people may now be embracing thriftiness, which in turn has paved the way to a plummet of over $1 trillion in consumer credit card debt. It remains to be seen if this thriftiness trend has legs and leads to a long-term shift in both spending and saving habits, and we potentially all embrace increased frugality.