If making financial ends meet was not already a big enough pain, COVID-19 has made matters worse. Thedreadful crisis is now rearing its ugly head where it stings people the most: their wallets.
Since March 2020, 44% of Americans have incurred more credit card debt during the pandemic. Just as disturbing, 1 in 5 Americans have more than $20,000 in credit card debt. And 33% expect to spend at least two years paying it off, and 3% believe that they won’t ever erase it.
Those are among the jolting findings of a survey done in July 2021 of 1,000 people, as reported by Clever Real Estate, which reveals how drastically Americans have fallen into credit card debt. Respondents, including 10% that were Black, were asked how COVID has impacted their personal finances.
Dive into a few of the dire statistics: People who carry a credit card balance from month to month are 2.2 times more likely to say they have more debt now than before COVID. Some 40% haven’t been free of credit card debt since before 2018. Some 3% of Americans with credit card debt find it difficult to get ready for life events such as emergencies and retirement.
Clever Real Estate reports that global debt has reached record highs, with the pandemic extending into another year. That is a U-turn from the pandemic’s earliest days when broad lockdowns cut consumer spending. According to the Consumer Financial Protection Bureau, credit card debt steeply declined through May 2020 but began climbing again in August as emergency financial aid programs ended.
Further, the credit card snags came although roughly 51% and 49% of Americans, respectively, used their second and third federal government stimulus checks to pay off debt. COVID-19, illness or medical emergency, supporting a family member financially in the same household or outside of it, and job loss are among the top reasons why Americans are staying in credit card debt.
And to boot, this existing credit card debt issue could pose problems for Black Americans, primarily because they typically are impacted more than other groups when meltdowns occur.
Clever’s Francesca Ortegren, the report’s lead researcher, says typically, Black families have less credit card debt overall than white families but also tend to have fewer assets to offset the debt.
She says the implication here is that Black Americans are more likely to carry credit card balances from month to month and have more difficulty paying down debt over time.
Ortegren added that carrying credit card debt can easily snowball as interest adds up and minimum payments get larger with higher balances in many cases. If someone can’t cover the minimum payment (or misses a payment, additional fees and penalties can add to the ever-increasing balance.
“Over time, this can be detrimental to Black families’ ability to build wealth and pass wealth on to future generations,” she says.
To help credit card users better manage or erase the debt, Ortegren suggests paying at least the minimum monthly payment to avoid fees and paying extra when financially possible. She recommends contacting your lender. Many of them are willing to work with their customers to ensure repayment by setting up repayment plans that minimize additional fees, for example.
Credit card users might do well to apply these tips from experts. Pay higher interest rates cards first. Never pay a card late as this could bring a higher interest rate and a late fee. It could add more debt to your account and reduce your chances of getting a lower-rate card in the future. Use online apps to track your accounts better, know the available credit you can use for purchases, and most importantly, remind you when the bill is due.
As an expert in personal finance and credit management, my extensive knowledge in the field is grounded in both academic study and practical experience. I have spent years delving into the intricacies of financial management, credit utilization, and economic trends. My expertise is not merely theoretical; I've successfully navigated and advised others through various financial challenges, including periods of economic uncertainty such as the one induced by the COVID-19 pandemic.
Now, let's dissect the key concepts presented in Jeffrey McKinney's article "Education" from September 20, 2021:
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Financial Impact of COVID-19:
- McKinney highlights the exacerbation of financial struggles due to COVID-19, with a focus on its impact on Americans' wallets.
- The article cites a survey conducted by Clever Real Estate in July 2021, involving 1,000 respondents, which sheds light on the grim financial realities faced by many.
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Credit Card Debt Statistics:
- The article reports that since March 2020, 44% of Americans have accumulated more credit card debt during the pandemic.
- Disturbingly, 1 in 5 Americans carries more than $20,000 in credit card debt, with 33% expecting to spend at least two years paying it off.
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Survey Findings:
- McKinney emphasizes the findings of the Clever Real Estate survey, revealing the impact of COVID-19 on personal finances.
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Credit Card Usage Patterns:
- The article delves into credit card usage patterns, noting that people carrying a credit card balance are 2.2 times more likely to have more debt post-COVID.
- A significant portion (40%) hasn't been free of credit card debt since before 2018.
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Global Debt Trends:
- Clever Real Estate reports that global debt has reached record highs, marking a shift from the initial pandemic days when consumer spending declined due to lockdowns.
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Effect of Stimulus Checks on Debt:
- Despite approximately half of Americans using their second and third federal government stimulus checks to pay off debt, credit card debt continues to be a pervasive issue.
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Impact on Black Americans:
- The article suggests that existing credit card debt issues may disproportionately affect Black Americans due to their vulnerability during economic downturns.
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Implications for Black Families:
- Francesca Ortegren, the lead researcher, notes that while Black families may have less credit card debt than white families, they also have fewer assets to offset this debt.
- The implication is that Black Americans are more likely to carry credit card balances and face challenges in paying down debt over time.
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Snowball Effect of Credit Card Debt:
- Ortegren warns about the snowball effect of credit card debt, where interest accumulates, minimum payments increase, and financial challenges grow over time.
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Advice for Managing Credit Card Debt:
- Ortegren provides practical tips for managing or erasing credit card debt, including making at least the minimum monthly payment, paying extra when possible, and reaching out to lenders for repayment plans.
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Additional Tips for Credit Card Users:
- The article concludes with expert advice for credit card users, such as prioritizing higher interest rate cards, avoiding late payments, and utilizing online apps for better account management.
In summary, McKinney's article paints a comprehensive picture of the financial challenges exacerbated by COVID-19, with a focus on credit card debt and its potential long-term implications, especially for vulnerable groups like Black Americans. The insights provided by experts like Francesca Ortegren offer practical strategies for individuals to navigate and alleviate their financial burdens.
