Back in February of this year, the Federal Reserve issued a report stating that Americans hit an all-time record high for credit card debt owing a total of close to $1 trillion. However, by Q2 2020 credit card balances decreased by a total of $76 billion due to the decline in overall consumer spending. In addition to the decline in spending consumers reportedly paid down $58.1 billion in credit card debt during Q2 2020 which according to reports is the second-highest paydown since 1986.”
Many financial experts concur that the reason for the fluctuation in credit card debt for 2020 is the result of COVID-19. The impact of the pandemic has many more consumers reaching for their card to cover everyday expenses..Wallethub reported the average credit debt per household and the total credit card debt has decreased drastically since Q4 2019 and Q2 2020 at 8.2% and 7.6% respectively. It is expected that 2020 will close out with credit card debt having its first reduction since 2009. Creditcards.com states that “Consumers have added to their credit card balances have by 23% as a direct result of the COVID19 pandemic.”
Credit Card Debt in the U.S.
Approximately 47% of Americans have credit card debt, an increase of 4% since March of 2020. Gen Xers having the highest average credit card debt among all generations. The credit card debt average for Gen Xers is $8,215. Nearly 60% of Americans were in credit card debt entering the pandemic. 15% of these individuals have had this debt for 5 years or more.
Interestingly enough, the latest Experian State of Credit Report has shown that the youngest generation Gen Z has shown the greatest improvement in overall credit data for 2020 compared to a 2019 report. Gen Z has the lowest delinquency rate excluding the Silent Generation, among all generations according to this report. This is a big change considering the annual State of Credit Report in 2019 found that Gen Z carried the highest delinquency rate.
Credit Card Balances are Decreasing
The national average credit card debt for Americans is $5,331 for Q2 2020. This is down 14% compared to Q2 2019. Despite the national average credit card debt being $5,331, over 50% of Americans have balances that are $2,500 or less. The average consumer has a total of four credit cards, with the vast majority owning at least one card.
Delinquencies for 2020 is on the Rise
Even with the average credit card debt dropping, the percentage rate for delinquencies is on the rise. As of Q2 2020, the delinquency rate is at 9.8%. A jump of 1.4% compared to Q4 2019.
The highest delinquencies are with the younger millennials. This group has a delinquency rate of 9.36%. According to Ted Rossman, an analyst with CreditCards.Com, this is due to this generation suffering financial hardship more than any other generation. Rossman says that the pandemic is to blame for the current state of Americans and credit card debt. He also mentions that millennials are struggling the most and are relying heavily on credit cards for their basic necessities.
Most millennials lack an adequate amount of savings to support themselves in the event of a financial crisis, which is the reason for the increase in delinquencies and unpaid debts among this generation. This also justifies the largest increase in debt for this generation in the last 5 years. Since 2015 Millennials have increased their overall debt by 58%. Rossman mentions that the recent pandemic marks 2 recessions that millennials have experienced during their employment history.
Failing to pay the Minimum
Close to 40% of Americans are unable to pay more than their minimum monthly credit card payment, increasing the chargeoff rate for credit card debt by 3.3% during Q2. The average minimum monthly payment for most credit cards is $25 or 2% of the account balance. The average minimum monthly payment that Americans are paying based on a survey conducted amidst the pandemic was $133. This can cause the minimum payment to fluctuate each month due to additional charges and fees, as well as going over your credit limit due to interest rates.
55% of Americans carry over a credit card balance from month to month. Leaving the remaining 45% of Americans has reportedly paid their card balance every month. The Federal Reserve reported that 6% of Americans carried a balance “just once in the past year.”
Prior to March of 2020, most financial experts were recommending that consumers look into balance transfers or personal loans to consolidate their debt, however, because of the current situation, banks and credit card companies are forcing consumers to explore other options because of the risk involved. Some financial experts are still advising to look into 0% balance transfer credit cards, however, they are also recommending to seek professional help with managing their finances.
CreditCards.com conducted a survey in July 2020 regarding the current state of credit card debt of individuals. “The sample size surveyed 2,372 adults and was conducted online from July 15-17 2020.” This survey found that over 60% of those polled indicated that they would not be able to meet their credit card minimum payments over the next quarter due to the pandemic. Close to 80% of individuals surveyed back in August of 2020 expressed concern about the inability to meet the minimum payment requirements on their credit cards due to the unemployment rate being 10% and continuing to rise.
Average of Individuals Paying on Time
Recent surveys have shown that 27% of Americans admit they fail to pay their bills on time and close to 60% continue to struggle with reducing the amount of debt that they have. In fact, an estimated 16% more households are carrying revolving credit card debt each month compared to 2019. On the other hand, based on the Harris Poll in March 2020, 69% of U.S. adults pay their bills on time and have no items in collections. This number is still lower when compared to other years.
Interest rates for credit cards
As of October 2020, the median interest rate for credit cards is 19.24% according to the Federal Reserve Bank of New York. The Balance collected data regarding the credit card interest rate as of Oct 2020, and it is reportedly at 20.23%. This is down slightly over 1% since January 2020. Both of these figures surpass the national average credit card interest rate of 14.52% most recently reported by the Federal Reserve according to Investopedia.
Credit Card Debt and Demographics
Credit Scores and Credit Limits Among Generations
Baby Boomers (55-73), have the largest average credit limit and the second-highest average FICO score. The Silent Generation (74 and older) has the highest average FICO score and the third-highest average credit limit. Experts say that older generations have had the time to build a positive payment history, and develop better-paying habits. Your FICO score is composed of 15% length of credit history and 35% payment history.
Credit Card Debt By State
The state with the highest household credit card debt is Alaska and it ranks 46 out of 50 as far as credit card debt paydown. Alaska has the highest average credit card debt, followed by New Jersey, Connecticut, Virginia, and Maryland rounding out the top 5 states with the highest debt. Iowa has the lowest average credit card debt with Wisconsin, Kentucky, South Dakota, and Idaho following in its footsteps. The state with the highest pay down of credit card debt in the U.S. goes to California.
Credit Utilization By Generation
Aside from having the largest amount of credit card debt compared to other generations, Gen X also has the highest credit card utilization rate, at 32%. Millennials and Gen Z have the greatest financial stress among all generations yet they have experienced the biggest decrease in their utilization rate. This rate has dropped by 5%-6% between Q2 2019 and Q2 2020, which is just under 30%.
Gender and Credit Card Debt
Prior to the Equal Opportunity Credit Act of 1974, women struggled to receive equal treatment when it came to obtaining credit. Now, based on Q2 2019 information from Experian, women are slowly reaching parity in all aspects of credit as their male counterparts. Based on this report, women had a lower average credit card balance than men, more average credit cards than men, and comparable FICO scores. The average male score is 705 and the average female score is 704.
Updated information from September 2020 still supports the findings in 2019 that men carry more average credit card debt than women. In 2020, men had an average of $7,407 an increase of approximately 14%. Women have shown a 16% decrease in their average credit card balances compared from 2019-2020. This significant difference is attributed to the type of purchases made between the two genders. Women are known to use their cards on smaller expenditures, while men will use their cards to purchase more expensive and luxurious items.
Race and Credit Card Debt
Caucasian, non-Hispanic individuals have the highest average credit card debt among any other races, despite having the lowest percentage of credit card holders than other races. Their average credit card debt is close to eight thousand dollars, according to recent reports. Asians have an average of $7,660, Latinos average $6,469, and African-Americans have the lowest average at $6,172.
Education and Debt
The highest average credit card debt was among individuals with a college degree. The average amount of credit card debt among this group is approximately $8,200. This group has the second-lowest percentage of credit cardholders. The lowest percentage of individuals having a credit card balance is with those that do not have a high school diploma.
Income Levels and Debt
There is no doubt that your income correlates with your debt.Based on Q1 findings of credit card debt , the more income you have the greater the credit card debt you carry. Individuals who made less than $25,000 per year have an average of $3,000 in credit card debt, while those who make between $70,000-$114,999 almost double the average credit card debt.
Settling Credit Card Debt
The average balances of individuals seeking credit counseling to help manage their debt exceed $20,000 according to an article published in February 2020. This amount is close to 4 times above the national average for household credit card debt. These individuals that are seeking credit counseling carry an average of 5 credit cards with interest rates close to exceeding 20%. This is double the number of average credit cards carried by those seeking credit counseling in 2002, based on information reported by the National Foundation for Credit Counseling and the Credit Research Center based on Transunion credit data.
According to recent reports, most credit card companies will allocate a budget that is set aside each year for credit card debt settlement. Most credit card companies will settle for at least 30-80% of the outstanding credit card debt. The number of individuals that are using a debt settlement option is inconclusive since the option can be performed without or without professional guidance. 1 in 4 Americans seeks professional help to manage their finances according to the National Foundation for Credit Counseling, while an estimated 3 in 4 believe that they could benefit from professional credit counseling services.
If individuals are experiencing financial struggles regarding their credit card debt, they are more apt to first turn to their friends and family and then seek professional help. Less than 10% are willing to turn to a professional first.
The key takeaways from the breakdown of these statistics are:
- Gen Z has shown the greatest improvement from 2019-2020
- 40% of Americans are unable to make minimum monthly card payments
- Delinquencies have increased by 1.4%
- The percentage of Americans with credit card debt increased by 4%
- Close to 60% of Americans carried credit card debt at the start of the pandemic
- Gen X has the highest average credit card debt and utilization rate
- 1 in 4 Americans are looking for professional help with finances