US Economy: Credit Card Debt Swells During Coronavirus After Record 1Q Paydown

Americans are expected to wrack up more than $140 billion in credit card debt before the end of the year as a result of the coronavirus pandemic that has seen record layoffs and double-digit unemployment rates. Before the pandemic hit, consumers had paid off a record $60 billion of their more than $1 trillion balance.

The situation likely is worst in states with high numbers of small businesses and those whose economies are highly dependent on tourist dollars.

“Americans began 2020 owing more than $1 trillion in credit card debt after a $76.7 billion net increase during 2019. Consumers quickly changed course, however, posting the biggest first-quarter credit card debt paydown ever, at $60 billion. That indicates U.S. consumers were on pace for one of their best years before the COVID-19 pandemic turned it into one of the worst,” WalletHub senior researcher Alina Comoreaunu said in a blog post.

The coronavirus pandemic began taking hold in mid-March with the number of confirmed infections nearing 2 million by midmorning Monday and at least 110,514 deaths in the U.S., prompting an economic shutdown that exploded the unemployment rate. The Bureau of Labor Statistics Friday pegged the May rate at 13.3% but noted it could be several points higher.

A WalletHub study indicates the first quarter credit card paydown was the largest since at least 1986 and 71% higher than the first quarter following the Great Recession, with debt roughly 6.5% lower than the fourth quarter of 2019.

Average credit card debt per household fell to $8,509 in the first quarter of 2020 compared to $8,567 in the final quarter of last year. Total credit card debt at the end of the first quarter of 2020, however, was up 1.7% from the previous quarter to $1 trillion.

“It’s common for consumers to pay down credit card debt during the first few months of the year, as this is when many people receive annual salary bonuses and tax refunds. This year’s first-quarter paydown was just a lot bigger than normal -- at least 50% higher than anything we’ve seen in the past 20 years,” WalletHub analyst Jill Gonzalez said in a press release.

WalletHub found in a separate survey the economies of Florida, Louisiana, Mississippi, Kentucky and New York, followed by the District of Columbia, Georgia, Virginia, Illinois and Maryland are the most vulnerable to coronavirus.

New York had the highest share of small businesses forced to close at least temporarily (51.4%) while Montana had the highest share of unemployment from small businesses (65.2%) and Mississippi had the smallest share of population working from home prior to the pandemic (2.3%). Mississippi also had the lowest percentage of households with broadband subscriptions (48.6%).

“While the federal government has helped mitigate some of this damage through business loans, direct stimulus payments to individuals and increased unemployment benefits, it will take a long time for state economies to recover, especially in states that depend heavily on the industries that were most affected by the pandemic,” WalletHub financial writer Adam McCann said in a blog post.