Card balances are low, but that doesn’t necessarily mean better economy.
U.S. credit card balances are declining – path down. According to latest household debt and credit report from the Federal Reserve Bank of New York, credit card balances fell sharply in the first quarter of 2021. In fact, balances experienced the second largest decline in data history, dating back to 1999 .
Overall, total credit card balances fell $ 49 billion in the first quarter of 2021, a single-quarter drop that comes just after the drop seen in the second quarter of 2020 when lockdowns were widespread and retail purchases virtually halted. Additionally, credit card balances are still well below pre-pandemic levels, being $ 197 billion less than what we saw at the end of 2019.
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Weak retail sales and stimulus controls were contributing factors
Unlike the drop in early 2020, this latest drop in card balances may not be entirely due to weak retail sales. Of course, people aren’t spending as much as they were in 2019 – pandemic reluctance and unemployment is preventing people from going to pre-pandemic stores in droves.
But the people are come back there. The fourth quarter of 2020 saw a slight increase in retail spending and credit card balances, as is typically the case during holiday spending. And there were also strong retail sales figures in March 2021, as stimulus checks hit. However, the third stimulus payments in March may have played a double role in Americans’ low card balances.
While retail sales suggest that many people are putting their stimulus checks straight into retailer coffers, cash payments mean fewer shoppers leave their purchases on their cards for a long time. Additionally, some beneficiaries with unpaid credit card debts may have spent their stimulus payments on clearing their existing balances rather than increasing them. On this point, it is difficult to be conclusive, because the available data does not specify the balances of new credit cards compared to existing balances.
The balance decreases steadily with income, but not with age
Whatever the cause, it affected most households at the same rate. While consumers in regions with average annual income below $ 58,000 have consistently had the highest balances – and the lowest $ 79,000 and above – increases and decreases in the number of card balances have followed. a similar trajectory since February 2020 at all income levels.
That being said, young people certainly have larger credit card balances than their more experienced counterparts – and have done so for most of the past year. Data shows that cardholders aged 20 to 29 have steadily increased their card balances since July 2020, which roughly coincides with the lifting of many lockouts.
Card balances for the 20-year-old population were almost back to pre-pandemic levels in the last quarter of 2020, although even these balances saw remarkable declines in the first quarter of 2021. Since access retail has not been downplayed – if anything, it has increased – the decrease in card balances for young people is likely due to a typical drop in Q4 to Q1, as well as stimulus payments intended to indebtedness.
Balances likely to increase soon
As it stands, it’s likely that card balances will see distinct increases over the next few months or so. On the one hand, ever-shrinking vaccinations and restrictions make retailing even more appealing, and many people who have been locked up for about a year are ready to head to town.
Also, there is hardly any real talk of a fourth stimulus payment at this point, and the jobs numbers are still struggling. Underemployment could very well prove to be an even bigger problem than before the pandemic – especially in areas like retail and hospitality, which are currently experiencing hiring difficulties due to stagnation salaries.
Increased unemployment benefits are also being withdrawn as governments bow to pressure from employers who do not want to raise wages. This likely means that we will not only see existing card balances increase, but no doubt there will be an increase in new card balances as people turn to their cards to make ends meet.
If you’re currently struggling with high credit card balances – or soon will be – you can check out our guide to paying off credit card debt for some basic advice on managing card debt.