Credit Card Debt and Covid-19

Covid-19’s impact on the world economy has been unprecedented. Few industries were spared and the virus did not discriminate no matter how much your net worth. Needless to say, debts are racking up.

The Covid-19 Impact on Credit Card Usage and Debt

In these hard times, it’s not just our health that we need to take good care of but also our financial status. Given that a lot of jobs were lost or in peril, as well as both small businesses and large companies struggling or worse going bankrupt, staying on top of finances has been hard to do.

Credit card debt has ballooned and Covid-19 has forever changed the way we do banking or the way we use a credit card. Remember that you are not alone and that there are certain measures in place to help you out if you’re struggling.

By the Numbers

Based on a recent statistic, about 51 million American adults have incurred or increased their credit card debt ever since the Covid-19 pandemic began. That’s a staggering statistic. That’s 1 out of 5 American adults or almost 1/6th of the population of the country. Unfortunately, it doesn’t stop there. Take note that not a lot of these individuals are able to pay their debt on time, resulting in large amounts of interest accruing from month to month until they are finally able to settle their debt.

This goes to show that times are tough and we need all the help that we can get to get back on track. About 44% of people surveyed concluded that their accumulated debt was down to the negative effects of Covid-19 on their finances.

To give you a better perspective of the current situation, almost half of American adults now carry debt from month to month and it will take years before they settle it. So, while it’s not an uncommon thing, the debt situation has been amplified to greater heights by the pandemic.

Which household now carries the most credit card debt? There’s no discrimination in this category, or at least there’s no significant difference between the percentages.

It turns out that 50% of high-income households or those with a yearly net income of $80,000 carry credit card debt. About 61% of medium-income households with a net income of $40,000 to $80,000 and around 54% of low-income households or those earning less than $40,000 carry credit card debt.

Some of these households will carry this debt for the next five years or longer. Curious as to which age group has incurred more debt during the pandemic? It turns out that it’s the younger generation. Millennials (or the generation aged 25 to 40 years old) and Gen Z (or the generation aged 18 to 24 years old) incurred or increased their debt by about 52%.

Generation X and the Baby Boomers fared a bit better at around 38% and 33% respectively. This is no surprise given how millennials and Gen Z individuals tend to spend a little bit more compared to older age groups.

Reasons Why Credit Card Debt Skyrocketed During the Pandemic

Almost half of the lower-income individuals who contracted Covid-19 say that they have had a hard time paying their medical bills. Also, about 25% of general adults in the country say that they have had a hard time paying their bills, too. If we’re going to point to a reason why credit card debt has skyrocketed in the past couple of years, then it’s largely attributed to financial struggles due to medical bills.

Losing or quitting a job is also a huge reason why people’s debt is piling up. Some quit or cut back on their work hours to take care of their kids because the household was adjusting to virtual learning. Speaking of virtual learning, some credit card debt is due to buying equipment or technology needed for it. Paying the mortgage or rent has also largely contributed to the problem.

What Can You Do?

Many creditors provide Covid-19 hardship assistance programs aimed at helping ease the financial strain caused by dependency on credit card use during the pandemic.

It’s highly recommended that you contact your credit card company if you’ve been largely impacted financially by the Covid-19 pandemic. Chances are they might be offering some form of relief that you can utilize to alleviate the negative effects of the pandemic on your finances.

American Express has a financial relief program for its clients. Their assistance may help lower your monthly payment or relieve you of any late fees. Chase also offers additional assistance especially with late payment fees if you register online.

HSBC also helps out their clients by deferring if not reducing their payments. Also, they may waive late fees and interest charges if you enroll in their relief program. PNC Bank also expressed intent on helping out members who have had struggles during the pandemic.

These are just a few of the institutions that have joined the movement of helping out individuals who have had a hard time financially during the pandemic. No matter the assistance, it will surely be beneficial for you to contact your financial institution now.

Here are a few questions that you may want to ask your credit card issuer:

  • Is it possible to either skip or defer payment for now? It also wouldn't hurt to ask them if they can waive any interest charges in the foreseeable future.

  • Is it possible for you to waive my late fees for now? Will I be charged an APR penalty or will you report late payments to the credit bureau?

  • Is it possible for you to lower my interest rate right now since it’s a pandemic?

  • Is it possible for you to increase my credit card limit?

  • Will I get a refund for my points or miles on canceled trips?

Inquiring about financial relief assistance should pave the way for eventually paying off credit card debt.

Additional Advice

Sometimes the most practical advice yields the best results. When you’re in any kind of debt and want to get out of it then you need to be disciplined and even more so given the situation that the entire world is in today.

Know where you currently stand on your finances. Take a few hours to actually track your money, where it goes and what are your sources. How much is your current debt and how much interest should you expect?

There are a lot of ways and advice you’ll get from a lot of people, experts, and online, but it’s important that you find a way to get out of your debt that works for you. There are two known ways to go about eliminating your debt.

The first one is what is called the avalanche method where you work on paying off the debt with the largest interest first. The second is called the snowball method where you pay off smaller debts first. Whichever way you choose, just make sure that it’s the one that works best for you.

Stop chasing rewards if you are already incurring high-interest rates. Stop using a credit card that you already have a lot of debt on just to earn points. Try to create a system enabling you to utilize a debit card or cash for daily spending to help ease up on your credit card usage and debt.

Who Else Can I Talk To?

Aside from your credit card issuer, you could also talk to a non-profit credit card counseling team. Non-profit credit counselors offer services that may help you get out of credit card debt.

The counselors will give you valuable advice on managing your finances, managing your spending habits, how to deal with your creditors, creating a budget, and an overall plan to get you out of your debt.

Non-profit credit card counselors charge very low rates or are at your disposal for free. They are actually the perfect people to ask for help in hard times like these.

You can enroll in a debt management program that can slowly but surely straighten out your finances. Aside from working with you, they may also work with your creditors in finding a better way to deal with your debt. They can lower your monthly payments, lower interest rates, stop late fees, and even help you save money in the process.

With the help of a non-profit credit card counseling team, you will get out of your debt at the lowest cost possible.

Final Thoughts

Given the situation that the entire world is in today, it’s not surprising that someone would be knee-deep in credit card debt. What’s important is our willingness to eventually pay it all off.

It’s not impossible and there are systematic and practical ways to do so. Please find the right people to talk to about it. Find someone you can trust to get advice from and, little by little, chip away at that debt. 

Sources:

https://www.cnbc.com/2021/09/27/42-percent-of-americans-have-increased-their-credit-card-debt-during-covid-19.html

https://www.pewresearch.org/social-trends/2020/09/24/economic-fallout-from-covid-19-continues-to-hit-lower-income-americans-the-hardest/

https://www.cnbc.com/2021/01/27/millions-of-americans-boosted-their-credit-card-debt-because-of-covid.html


Rick Munster

About the Author

Rick’s been with Money Fit by DRS for 18 years and early in his career, he managed two divisions, customer service, and credit counseling, before settling in his current role of managing the organization’s marketing efforts. He is known for being someone who’d give the shirt off of his back for you, and smile while doing it! He takes that positivity and problem solving to consumers when relaying a message of help, hope, and better times ahead. When he isn’t helping consumers regain control of their debt, he loves traveling and seeing new places.