Before the pandemic, credit card debt was increasing for consumers. After the pandemic, it began decreasing. That trend starting shifting back up at the beginning of the Summer. However, it still has a ways to go before it reaches pre-pandemic levels.
Generally, when consumers experience financial difficulties, they turn to credit cards to finance expenses. That didn't happen when the pandemic hit. Instead, consumer credit card debt decreased. This included those who lost their jobs due to the economic shutdown. If consumers weren't financing expenses on credit cards, how did they get by?
The change in consumer credit card debt levels can be attributed to the $600 government stimulus checks and enhanced unemployment benefits, according to a September 2020 report from the Consumer Financial Protection Bureau. These efforts reached those who needed it, evidenced by the decrease in credit card debt. Additionally, consumers simply pulled back on spending starting in March. During normal months. 17% of overall consumer spending goes on credit cards.
There are some major spending differences in levels of income. High-income households reduced their spending by 17%, while low-income households reduced spending by only 4%.
How well a consumer faired during the pandemic is also directly correlated to their credit score. Going from the lowest scores to the best, consumers' ability to pay bills went from poor to excellent.
Looking at preparedness, 38% of consumers would not last financially beyond two months if they lost their source of income. Getting by during that period meant using any savings, selling assets, and borrowing. 22% of consumers could sustain themselves for 2-6 months, while 29% could sustain for six or more months.
Savings rates also increased during 2020. In January 2020, savings rates were only 7.9%. By April, they had hit a high of 32.2%, according to Federal Reserve data from 2020. Americans have had a traditionally difficult time saving. Some of that difficultly can be attributed to the increase in prices. Today's middle-class lifestyle is 30% more expensive than 20 years ago.