U.S. Consumer Credit Card Debt Falls Again in Q3 2020

In what may come as a surprise to some but consumer credit card debt once again took a tumble from June to September. According to WalletHub’s latest data, American consumers paid down a total of $707 million during the third quarter of 2020. Although that’s extremely modest in comparison to the $60 billion and $58 billion in credit card debt erased in Q1 and Q2 respectively, it still marks the first time that a third-quarter debt reduction has been recorded in 35 years. What’s more, the site now projects that consumers will see a year over year reduction in credit card debt for the first time since the Great Recession, with the drop expected to total $89 billion.

For comparison, in 2019, Americans tacked on another $21 billion to their credit card debt after also adding $35 billion during Q2 of that year. As a result, the total owed rose by $76.7 billion during the full year. In other words, if projections hold true, consumers will erase that and then some in 2020. The last time there was a negative net change in total credit card debt was 2009 when debts dipped $900 million for the year.

Year over year, total credit card debts fell from $1.024 trillion to $926 billion. In turn, the average credit card debt per household dropped by 10.8% year over year. In Q3 2019, the average sat at $8,798 but fell to $7,849 this past quarter.

As mentioned last quarter, the timing of these paydowns may seem odd given the pandemic and the hardships its brought upon many people across the US. However, it seems the reduction in spending among those who have remained financially stable during the crisis has outpaced additions from those who may be relying on credit to get through. In that way, the debt reduction could be seen as a positive side effect of what’s otherwise been a challenging time. As WalletHub analyst Jill Gonzalez adds, “The more than $119 billion in credit card debt that U.S. consumers have repaid during the first three quarters of 2020 is actually one clear silver lining of the pandemic. Paying off debt is one of the best ways to pandemic-proof your finances, and too many of us were way far too overextended at this time last year, so it’s great that we’ve collectively cut back.” Looking toward the year’s end, Gonzalez also notes, “WalletHub is projecting consumers to add about $30 billion in credit card debt during the fourth quarter of 2020, leaving us with a decrease of about $89 billion in credit card debt for the year. If consumers do end 2020 owing less credit card debt than they started with, it would only be the second time in at least 35 years that’s occurred.”

With reports suggesting that Americans plan to spend less on holiday expenses this year, it’s possible that the projected $89 billion payoff figure may end up being even larger. That said, it seems all but certain that a rise in spending overall will snap the mini-streak we’ve seen. Regardless, these recent debt reductions seem to be a fortunate result of an unfortunate time. With any luck, consumers will carry the lessons they’ve learned throughout this pandemic, allowing them to further pay down debts in the future.

Author

Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded DyerNews.com in 2015 to focus on personal finance and the emerging FinTech markets.

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