In many ways, the coronavirus crisis paved the way for a better budget.
Consumers are paying off debts and saving more than before. Many are taking advantage of low interest rates to refinance and reduce their monthly bills.
Federal relief, such as stimulus checks, expanded unemployment benefits and a prolonged pause in loan repayments, even gave some a chance to catch up on payments.
In all, Americans paid nearly $ 83 billion in credit card debt during 2020 – a record high, according to a credit card debt study on the personal finance website WalletHub.
This marks only “the second time in the past 35 years that we ended the year with less credit card debt than at the beginning,” said Jill Gonzalez, an analyst at WalletHub. (The first time was in 2009, after the Great Recession.)
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At the end of last year, the average domestic credit card balance dropped to $ 8,089, WalletHub found.
Credit cards are one of the most expensive ways to borrow money. Card fees are now at 15.99% on average, slightly below a record high of 17.85%.
Many experts predict that there may be an increase in consumer spending once more people are vaccinated and Covid-related restrictions are lifted, which could undo some of the recent progress made in paying off debt.
According to the National Retail Federation, economic indicators point to a potentially record growth in retail sales during 2021.
Consumers have “enough purchasing power” that will combine with pent-up demand to provide “growth accelerators,” said the trade association.
The $ 1.9 trillion economic relief and stimulus bill would give an additional boost. The Democratic-led House plans to vote on Senate legislation on Tuesday so President Joe Biden can convert it into law earlier in the week.
“An explosion of short-term spending is inevitable,” said Gonzalez.
“The question is which way the pendulum swings in 2022 and beyond,” she added. “My hope is that consumers will internalize the lessons learned during the pandemic and show a new frugality.”
WalletHub projects that consumers will add about $ 50 billion in credit card debt in 2021 alone. The personal finance website used data from TransUnion, as well as the Federal Reserve and the Bureau of Labor Statistics.
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