With little to do for the most part of 2020 as a result of the coronavirus, it would make sense that Americans paid down their credit card debt last year.
This article was originally published by Market Crumbs.com.
Personal finance website WalletHub released its quarterly credit card debt study earlier this week, finding that Americans paid off a record $82.9 billion in credit card debt in 2020. WalletHub calls the feat “a major accomplishment” as they note Americans have averaged $54.2 billion in new credit card debt per year over the past 10 years.
Last year was only the second instance in the last 35 years that consumers ended the year with a lower total credit card balance than they began with, the other instance being in 2009 at the height of the recession.
Using data on Americans’ finances from TransUnion, the Federal Reserve and the Bureau of Labor Statistics, WalletHub’s study has some interesting findings.
Americans owe nearly $1 trillion to credit card companies as the average household credit card balance remains just over $8,000. Despite paying off a record amount of credit card debt last year, Americans actually added $36.7 billion in credit card debt during the fourth quarter alone amid the busy holiday shopping season.
Compared to the end of 2019, total credit card debt decreased by 10.8% to $955.4 billion from nearly $1.1 trillion. The average amount of credit card debt per household fell by 12% over the same period to $8,089 from $9,193.
WalletHub’s suggestions for managing credit card debt includes making and sticking to a budget, building an emergency fund of a year’s worth of after-tax income, repaying your most expensive debt first and trying the “Island Approach,” which is a strategy using various credit cards, with each serving a specific purpose.
“A short-term burst of spending is inevitable,” WalletHub analyst Jill Gonzalez said. “The question is which way the pendulum swings in 2022 and beyond. My hope is that consumers will internalize lessons learned during the pandemic and showcase a newfound frugality.”
Despite hopes consumers will pay off credit card debt the way they did last year, WalletHub doesn’t expect a repeat of 2020 as their early projection for credit card debt in 2021 is that U.S. consumers will add about $50 billion to their total balance.