Almost half of America now has credit card debt, and more
Nearly half (47%) of American adults, or about 120 million people, currently have credit card debt, up from 43% reported in early March, according to a new CreditCards.com report.
The surge in credit card debt coincides with states issuing stay-at-home orders that have forced millions of businesses to close. Alarmingly, 23% of credit card debtors have increased their credit card debt as a direct result of the current Covid-19 pandemic.
Millennial credit cardholders have been the hardest hit by the pandemic, with 1 in 3 (34%) still carrying credit card debt.
Ted Rossman, an analyst at CreditCards.com, said Millennials suffer more financial hardship than previous generations for two reasons. The sudden and unprecedented spike in unemployment has forced 30 million people to apply for unemployment. This, coupled with the fact that millions of young Americans already live on just enough to get by, has forced many to turn to credit cards to afford basic necessities. “Unlike previous recessions, ’08 and the Dot Com crash, unemployment came on so suddenly that people were forced to rely on their credit cards.”
Schwab’s 2019 Modern Wealth Report found that only 39% of millennials (aged 23-38) said they have enough savings to support themselves for at least three months if something unexpected happens. Additionally, 36% of respondents told Schwab that they had no money set aside for an unexpected expense.
Rossman said sluggish wage growth amid rising costs of living is hampering millennials’ ability to save. “Adjusted for inflation, average hourly wages have barely budged in 50 years, but some major expenses such as housing and college have increased exponentially.”
Overall, millennials earn almost 20% less than baby boomers at the same stage of life, according to a report of the nonpartisan think tank New America. Older millennials, those in their mid to late 30s, have now been through two recessions since entering the workforce.
“Between this and the Great Recession, it’s no wonder millennials had a harder time accumulating assets than Gen Xers and baby boomers,” Rossman said.
The CreditCards.com report finds that the most common strategy for paying off debt is paying more than the minimum (60%), balance transfers (13%), and paying only the minimum (13%). A total of 13% pay nothing at all (9%) or have no plan (4%).
Given the scale of unemployment, Rossman suggests that new solutions should be explored.
“Two months ago I would have told someone to get a balance transferable or a personal loan. Now credit card companies have stopped offering an interest-free balance transfers and banks withdrew personal loans due to risk,” he said.
Banks are offering breaks on credit card payments, Rossman noted.
“People need to talk to their credit card companies. Ask for a break, ask to skip a payment; every bank offers some kind of assistance,” he said.