Poll: COVID-19 causes increased debt for some consumers
The COVID-19 pandemic has changed the way we live and spend. And a new survey has found that for some that means having a bigger credit card balance.
A September 2021 online survey of 2,400 American adults by Bankrate found that 42% of consumers with credit card debt have increased the amount they owe since the pandemic began in March 2020.
This group was divided over whether the pandemic was the root of their financial problems. Among consumers who have seen their debt increase:
- Forty-seven percent said the pandemic had pushed them into more debt.
- Fifty-three percent cited other reasons for their growing indebtedness.
Of all the generations represented in the survey, millennials were the most likely to say the virus was the reason their debt increased.
Survey highlights that big data on declining credit card debt during the pandemic leaves out a big part of the story, says Ted Rossman, senior industry analyst at Bankrate .
“Overall, Americans have saved more and paid off debt over the past 18 months, but these improvements have not been distributed evenly,” Rossman said. “Unfortunately, a substantial percentage of Americans are doing much worse financially, and this is sometimes lost in macroeconomic trends.”
Who has credit card debt and for how long?
More than half of American adults (54%) have a balance on one or more cards, according to the survey, and debtors can take years to reset their balances to zero.
Among those carrying a balance, here’s how long they’ve been in debt, according to the survey:
- Less than a year or up to a year—38 percent
- A year or more-50 percent
- Two years or more—32 percent
- Five years or more-14 percent
Credit card debt is common among U.S. cardholders of all income levels, but those in the middle income bracket are the most likely to run a balance on their cards.
Here’s a breakdown of the percentage of households with credit card debt, by income level, according to the survey:
- High income ($ 80,000 per year or more)-50 percent
- Average income ($ 40,000 to $ 79,999)—61 percent
- Lower income (less than $ 40,000)—54 percent
Almost a quarter of high-income households with credit card debt (23%) have carried that financial burden for five years or more, compared with 13% of middle-income households and just 11% of low-income households.
Young consumers most affected by pandemic debt
Among all cardholders of all generations who already had credit card debt before the pandemic was declared in March 2020, the survey found that 42% saw their debt increase during the pandemic. However, there were important generational differences.
Here is the generational breakdown of the percentage of debtors who have increased this debt since March 2020:
- Millennials (25 to 40 years old)—52 percent
- Generation Z (18 to 24 years old)—52 percent
- Generation X (41 to 56 years old)—38 percent
- Baby boomers (57 to 75 years old)—33 percent
Millennials and Gen Xers who increased their debt in the past 18 months were more likely than other generations to cite the pandemic as the main reason for their extra debt.
Many older millennials (ages 32 to 40) were just starting their working lives when the Great Recession hit in 2008, says Tonya Rapley, founder of My Fab Finance. “It’s a generation that has experienced two major financial events in their lifetime,” she says.
Why the pandemic has hurt some financially
The pandemic has increased many indebtedness. But why? Possible reasons include job loss, quitting a job or reducing hours to handle children’s virtual learning, having to pay for daycare, or needing to purchase equipment and supplies. technology for virtual school or work, says credit card expert John Ulzheimer. In fact, a previous Bankrate poll found that many parents said virtual learning negatively impacts their family’s finances.
The pandemic also drove up prices, fueled the ‘panic buying’ of items like toilet paper, peanut butter and bottled water that could have been charged on credit cards and added new ones. spending on budget, Ulzheimer points out. “No one had masks or a gallon of Purell as a line item in their family budget until last March,” he says.
Government assistance during the pandemic has contributed to an overall reduction in credit card debt, said Scott Hoyt, senior director at Moody’s Analytics, which manages consumer forecasts and analytics. However, some consumers have clearly had to turn to credit cards to make ends meet during the pandemic.
Hoyt offers a few examples of consumers who may have found themselves in this situation: workers who lost income but were not entitled to unemployment, parents who had to balance childcare responsibilities and work, and middle-income workers who lost their jobs but returned to unemployment. insurance checks were lower than their previous wages.
“These people may have suffered the most,” says Hoyt.
Credit card debt more taboo than masks and vaccines
Few topics are more emotionally (and politically) charged right now than coronavirus safety protocols. Are you a masker? Completely vaxxed? Resolutely opposed to one or both? These questions can make waves in families and cause breakups among friends.
But the survey found that just over half of people with credit card debt feel comfortable talking about it with family and close friends. In fact, many more (83%) feel comfortable discussing, for example, vaccine passports, compared to discussing their credit card debt (53%).
Here are the percentages who reported feeling comfortable talking about other personal or topical topics with family and close friends:
- religious opinions—79%
- Health—78 percent
- Political Views—77 percent
- Weight—65 percent
The one survey topic that generates more discomfort than talking about credit card debt is showing your soul about dating and romance, but barely. The survey found that just over half (51%) of people with credit card debt said they felt comfortable disclosing details about their love life.
This is understandable because some people in debt fear that others will make assumptions about them because of their credit card balance, Rapley said: “They don’t want people to assume they aren’t responsible. . “
In search of a debt-free future
Every cardholder who’s ever seen interest charges rise has thought of a debt-free day. With the pandemic still raging, the future is uncertain for many.
The survey found that less than one in three credit card debtors (30%) expect to get out of debt within a year. Twice as many (60%) expect to be released from their debt within five years, while 28% expect it to take more than five years.
A small but significant percentage of cardholders see bleak prospects: more than one in 10 (12%) don’t know when they will be able to reach zero while one in 20 (5%) think they will die in debt .
Drowning in pandemic debt? There is help.
Did you increase your credit card debt during the pandemic? “Credit card debt can be particularly harmful and persistent because the average interest rate is north of 16%,” says Rossman. Fortunately, you have options.
Here are five steps you can take if you are overwhelmed by the credit card debt you racked up during the pandemic:
- Consider credit counseling. If you’re struggling with credit card debt, you can contact a nonprofit credit counseling agency such as Money Management International or GreenPath, recommends Rossman.
- Get a balance transfer card. If you’ve racked up debt on a high interest credit card, a zero percent APR balance transfer card may be the way to go. “It can save you a lot of money and help you pay off your debt even faster,” says Rapley.
- Talk to your lender. Philadelphia barista Jamie Hickey, who racked up $ 7,000 in debt during the pandemic due to job loss, says he spoke to Discover and cut his interest rate, helping him to repay its debt. “I would call the credit card company to see if they can help me,” he says. Lowering the interest rate on your credit card can be as easy as asking.
- Look for ways to increase your income. Look for a side job, take a second job, or look for a new (higher paying) one. Beth McCarter, a former teacher in Sherman, Texas who has racked up pandemic debt, says she has found seasonal work at UPS to help make ends meet. Many employers increase wages and offer hiring bonuses. “Now is the time to explore your options,” says Rapley.
- Learn the ins and outs of credit. “Learn how credit works and get as much credit education as you can,” advises Rapley. It is good to have a credit card that offers free access to your credit score so that you can check yours regularly and see what factors are affecting your credit.
Finally, why not participate in the new Bankrate Drop Your Debt Sweepstakes? Five winners will each receive $ 10,000 to pay off their debt. And you can get up to three chances to win: one when you create a Bankrate account, a second when you link a financial account, and a third when you take a money quiz. (No purchase necessary, ends October 16, 2021. See official rules.)
While you can’t count on a cash windfall (or anything else) to save you the day financially, it certainly doesn’t hurt to give it a try. Who knows? You might get lucky and earn a bunch of money to eliminate or at least reduce your debt.