In many ways, the coronavirus crisis has paved the way for better budgeting.
Consumers pay off debt and save more than they have in decades. Many take advantage of low interest rates to refinance and reduce their monthly bills.
Federal relief, such as stimulus controls, extended unemployment benefits and a prolonged pause in loan repayments, have even given some the opportunity to recoup overdue payments.
In all, Americans paid off nearly $ 83 billion in credit card debt during 2020, a record, according to a credit card debt study by personal finance site WalletHub.
This only marks “the second time in the last 35 years that we’ve even ended the year with fewer credit card debts than we started,” said Jill González, an analyst at WalletHub. (The first time was in 2009, following the Great Recession.)
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Late last year, the average home credit card balance dropped to $ 8,089, according to WalletHub.
Credit cards are one of the most expensive ways to borrow money. Card rates now stand at 15.99%, on average, slightly below the record high of 17.85%.
Many experts predict that there would be an increase in consumer spending once more people are vaccinated and Covid-related restrictions are removed, which could undo some of the recent progress made towards debt repayment.
According to the National Retail Federation, economic indicators point to potential growth in retail sales during 2021.
Consumers have “a lot of purchasing power” that will be combined with accumulated demand to provide “growth accelerators,” the trade association said.
The economic relief and the $ 1.9 trillion stimulus bill would provide an additional boost. The Democratic-led House is scheduled to vote on Senate legislation Tuesday so President Joe Biden can sign the law earlier this week.
“A short-term spending explosion is inevitable,” Gonzalez said.
“The question is how the pendulum will swing in 2022 and beyond,” he added. “My hope is that consumers internalize the lessons learned during the pandemic and show a new frugality.”
WalletHub predicts that consumers will add about $ 50 billion in credit card debts in 202 alone. The personal finance site used data from TransUnion, as well as the Federal Reserve and the Bureau of Labor Statistics.
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