The global economic landscape has changed drastically in the last year as the coronavirus pandemic has thrust the world into an unprecedented recession. With so many countries shutting down businesses and people losing jobs, it is no surprise that credit card balances have soared in the past quarter.
Recent data from the Federal Reserve shows that total credit card balances in the United States spiked to a record high of $1.08 trillion in the third quarter of 2020, surpassing the previous high in the fourth quarter of 2008. The increase marks the largest quarterly increase in credit card debt ever, according to the Federal Reserve.
But how did we get here? The answer lies in a combination of decreased consumer spending, increasing unemployment, and government stimulus programs like the one implemented by Congress in July of 2020. When the pandemic first hit the United States, much of the economy was shut down in an effort to slow the spread of the virus. Many businesses were forced to close their doors and lay off workers due to the lack of customers. Those that were able to remain open often had to make adjustments to accommodate the large decrease in business, leading to less spending overall.
At the same time, many people who had lost their jobs were relying on government-funded stimulus checks and other aid programs to help them get by. This led to an increase in consumer spending, as people used their stimulus-induced funds to pay for things like rent, groceries, or other necessities. With more money in people’s wallets, it only makes sense that credit card usage would spike as well.
A shift in consumer behavior also helped contribute to the increase in debt. Many people are using their credit cards to purchase items online, instead of going to the stores, leading to an uptick in digital purchases. Additionally, with so many people isolated at home, personal debt has also been increasing as people turn to credit cards for restaurants, travel, entertainment, and more.
The jump in credit card debt in the third quarter is troubling, as it reflects a worrying trend of increased consumer spending, which can lead to unsustainable borrowing and long-term debt. It is important that people take responsibility for their financial situation and keep their debt under control. This means budgeting and finding ways to pay down your balances as quickly as possible and avoiding taking on more debt if it can be avoided.
The COVID-19 pandemic has had a dramatic impact on the global economy, and the increase in credit card debt is just one of the many effects we are seeing. As the economic situation continues to improve and the pandemic hopefully comes to an end in the near future, it is important that people remain mindful of their finances in order to avoid falling into a cycle of debt.