Ask a consumer expert what would happen with credit card loan balances during a recession and the answer wouldn’t be that balances decline sharply and Americans avoid a wave of card delinquencies.
But that’s what happened during the pandemic year. Helped by government stimulus and limited to spending on necessary goods rather than discretionary items, consumers bucked economic downturn history when it comes to credit card debt.
″It’s been an upside down credit environment,” said Stephen Biggar, who covers financial institutions at Argus Research. “If you told me the market was going to crash 40% and we would have 20% unemployment, you would have also said card delinquency rates would go through the roof, particularly for the lower-end consumer.”
The savings rate spiked to a level not seen since World War II, and that caused consumers to take the cash they had and pay down debt — and often the first kind of debt they paid down was cards, which have among the highest interest rates, averaging 16%.
According to Experian, from Q3 2019 to Q3 2020, credit card balances fell 24%. Among active credit card holders right before the pandemic, 58% carried a balance month-to-month, an interest-rich pool for card issuers that is now down to a record low of 53%, according to the American Bankers Association.
“Lots of people made lots of progress paying down debt and we would not have thought that at the outset of the pandemic,” said Ted Rossman, senior industry analyst at CreditCards.com.