Personal Finance

American Credit Card Consumers Paid Down a Record $82.9 Billion in 2020

For only the second time in 35 years, Americans ended last year with less credit card debt than they started it with. Although U.S. consumers added $36.7 billion to their credit card debt during the fourth quarter of 2020 — snapping a three-quarter payoff streak — that wasn’t enough to erase the progress of the previous months. As a result, credit card debt fell by a record $82.9 billion year over year according to WalletHub. Moreover, the average credit card debt per household declined by 12% YOY, going from $9,193 in Q4 2019 to $8,089 in Q4 2020.

In addition to looking at trends for the U.S. as a whole, WalletHub also highlighted the cities that saw the largest decrease in average household credit card debt. Topping that list was Oxnard, California with an average $1,270 paydown per household. Oxnard was joined in the top five by West Valley City, Utah; Augusta, Georgia; Pearl City, Hawaii; and Shreveport, Lousiana — all of which maintained four-figure paydown averages. On the other end of the list, Burlington, Vermont had far and away the highest average increase, with credit card debt growing by $3,020 per household. Lewiston, Maine was a distant second with an average $948 increase followed by Fort Smith, Arkansas; Pembroke Pines, Florida; and Norfolk, Virginia.

Of course, the COVID-19 pandemic undoubtedly played a big role in 2020’s credit card debt paydown. While that may sound counterintuitive given the financial troubles many Americans faced during the year, a decrease in non-essential spending coupled with two rounds of stimulus funds may have contributed to the overall trend. In fact, 35% of those surveyed by WalletHub agreed that the pandemic actually made it more difficult to land themselves in serious credit card debt. Additionally, as several entertainment and hospitality venues tout the “pent up demand” they expect to be servicing in the coming month, one in ten respondents reported that they’re planning to embark on a shopping spree when the pandemic ends.

Commenting on what these 2020 debt figures mean, WalletHub analyst Jill Gonzalez stated, “The latest credit card debt statistics tell us that American consumers are actually getting healthier financially in some respects because of the coronavirus pandemic… Paying off so much credit card debt indicates that consumers have been making the most of the pandemic, by using the stimulus money and COVID restrictions to make their finances more sustainable.” Looking ahead, Gonzalez offered debt forecasts for this year and beyond, noting, “WalletHub is projecting that consumers will add around $50 billion in credit card debt during 2021. A short-term burst of spending is inevitable as pandemic restrictions are lifted. 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.”

With the pandemic ongoing, it’s too early to predict what financial lessons learned during this period will last as normal life resumes. Meanwhile, with a third round of stimulus payments looking likely, there’s a good chance we’ll see further credit card debt paydowns in the short-term. Therefore, we’ll need to keep an eye on future figures to see what long-term trends may emerge.

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