Americans are paying down more credit card debt
Just when you thought 2020 was devoid of good news for Americans – here’s a small financial reason to smile! U.S. consumers paid down a record amount of credit card debt this past year.
That doesn’t mean American consumers don’t still harbor a fair amount of credit card debt. According to a report from the Federal Reserve, Americans began 2020 with $1.09 trillion in credit card debt – an all time high. That number came about from a $76.7 billion net increase during 2019, according to a WalletHub study.
But an unprecedented pandemic did not cause the dramatic increase of credit card debt to continue. In fact, a downward trend was almost immediate. A slight paydown of consumer credit card data is normal in the first quarter of any year, according to the WalletHub study. However, in the first quarter of 2020 consumers paid down $60 billion in credit card debt – the biggest paydown ever.
The WalletHub study found that consumers continued paying off credit cards as this unprecedented year continued. In Q2 and Q3 combined, consumers paid down $58.8 billion more in credit card debt. That’s the first time in more than 30 years that credit card debt has dropped from April through September in the U.S.
It’s not that Americans stopped using credit cards in 2020. According to a Money.com study, 70% of U.S. consumers said they have no plans to cancel or close existing credit cards because of the pandemic. However, Americans have begun reducing discretionary spending during the pandemic. They’ve also taken advantage of lifelines offered though the CARES act – including the $1,200 stimulus check and the $600 a week available to unemployment recipients through the end of July – to pay down credit card debt.
“Sometimes, you need a crisis to wake you up to what you need to be doing, and I think a lot of people are experiencing that right now,” Bradley Klontz, a Boulder, Co.-based CFP and financial psychologist told Money.com.
Tips for paying down your own credit card debt
Paying off credit card debt can seem daunting – especially if you’ve amassed quite a bit. But with determination and some solid advice, living credit-card-debt free is possible. Here are some tips from Credit.com to get started in the right direction:
Gather all the information for every card on which you’re carrying a balance. Note the balances, interest rates, due dates and minimum payment for each card. Add up all the minimum payments on each of your credit cards to determine how much you must pay each month just to stay on top of credit card bills.
Consider paying off the card with the highest APR first
Try boosting your payments on the card with the highest APR and paying the minimums on the remaining cards. Once that card is paid off, move on to the card with the next highest APR.
Or consider paying off the card with the lowest balance first
This may be a method that’s easier to stick to for those who have a difficult time staying motivated without quick gratification. Enjoy the feeling of paying off that lowest balance – then keep paying off from there!
Create a budget
If you’re not spending within your means, you’ll likely never be able to pay down debt. Create a budget that works for you, leaving wiggle room to pay down that credit card debt.
It’s important to remember that you still need to spend money on necessities (food, clothes, rent, etc.). So be realistic about how much you can put toward your credit card debt each month.