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For the second straight month, credit card balances took a staggeringly large drop, according to the latest consumer debt data from the Federal Reserve.
The latest Fed data shows that consumer credit card debt fell at an annualized rate of 65% in March, leaving Americans’ outstanding consumer credit card balances at $1.020 trillion, the lowest total since April 2018.
This data comes from the second full month in which the coronavirus really began to take a toll on the American economy. The drop is the biggest, in terms of percentage, since the Fed began tracking revolving debt in 1968. The previous biggest-ever drop? An enormous 56% drop in January 1989.
This page is devoted to tracking Americans’ credit card use each month. We update it regularly, looking at how much debt people have, how often they carry a balance month to month, how often they pay their credit card bills late and more.
To start, here are some of the key numbers you need to know about credit card debt in the United States. We’ll dive into the numbers down the page …
Number of cardholders carrying a balance was flat in Q4 2019
Job No. 1 for anyone with a credit card is to pay that balance off in full at the end of each month. But we all know that life happens, and that means that it’s not always possible to pay off your credit cards each month. That’s especially true in the wake of the Coronavirus outbreak.
Unfortunately, most people with an active credit card account don’t always pay their bills in full. According to data from the American Bankers Association, 44% of credit card accounts carried a balance at some point in Q4, 32% of accounts were active but didn’t carry a balance and 24% of accounts were dormant for the quarter. The number of accounts that didn’t carry a balance was up 1 percentage point in the fourth quarter, while the percentage of those revolving a balance was largely unchanged.
While it’s great news that we’re not seeing more people carrying balances, the fact that so many people carried credit card debt in the generally good economic times of late 2019 is troubling. That’s because it means that they probably were not putting enough money for when those good times turn bad. For millions of Americans, that has happened in March or April of 2020 — and depending on how long and how severe the impact of the Coronavirus ends up being on our economy, things could get far worse before it gets better.
Card debt plunges as COVID-19 takes a toll
Americans’ credit card debt was at a record high in February. The coronavirus outbreak changed all of that. In April, revolving credit balances fell at annualized rate of 65% — the biggest percentage drop in the 52-year history of the report.
The Federal Reserve shows that revolving debt (made up mostly of credit card debt) now stands at $1.02 trillion, as of April 2020. It’s the lowest since April 2018. However, it is still well above the pre-recession peak from 2008 and light years beyond the $281 billion that we saw 25 years ago in January 1993.
Card debt showed hockey-stick growth until the financial collapse in 2008, when revolving debt fell from more than $1 trillion in the summer of 2008 to $832 billion in April 2011. But, as you can see in the chart below, the hockey stick returned.
It is anyone’s guess as to how long the recovery will take, how far credit balances will fall during the downturn and — perhaps most important — how quickly consumers will recover once the outbreak subsides. However, I think it’s reasonable to expect more declines in the short-term, at least until more states allow businesses to open and some sense of normalcy returns.
APRs rise slightly for the first time in months
After several years of relative stability after the Great Recession, credit card rates have climbed steadily in the past few years, driven largely by the eight rate increases that the Federal Reserve has implemented since 2015. The Fed reversed course in late 2019, implementing three rate decreases in recent months. After those cuts, it appeared that the Fed was likely done with tinkering with rates, but that was before the emergence of the Coronavirus outbreak. In a two-week period in March, the Fed lowered rates 1.5 percentage points, an enormous change in a short amount of time, and one that drove new card interest rates lower for several months.
Here’s where credit card APRs currently stand …
The latest CompareCards.com data on credit card APRs shows that the average APR with a new credit card offer is 19.22%, with the average card offering an APR range of 15.62% to about 22.82%, with your rate varying based on your creditworthiness.
The latest Federal Reserve data showed that the average APR for all credit card accounts fell to 15.09% in the first quarter of 2020. Meanwhile, APRs for cards that are accruing interest fell — again, likely thanks to the Fed — down to 16.61% from 16.88% a quarter ago.
Of course, you can make those interest rates a moot point by paying your card debt in full, but far too few people do. Meanwhile, those who carry a balance have seen their rates rise.
Here’s data from the Fed showing changes in the average APR for people who have accrued interest. It’s not pretty.
Credit card delinquencies move higher in Q1
According to the most recent delinquency data from the Fed, the 30-day delinquency rate (or the number of folks who are currently at least 30 days late with their credit card payment) reached 2.73% in the first quarter of 2020. That equals its highest level since 2012. The current rate is still quite low by historical standards — the average since the Fed began collecting that data in 1991 is about 4% — and it’s far below the record 6.77% rate we saw in April 2009, in the depths of the Great Recession.
But as we all know, things have changed enormously from an economic standpoint in 2020. It is highly likely that the coronavirus outbreak — and the unprecedented spike in unemployment that came with it — means that credit card delinquencies will skyrocket in the coming months. We haven’t seen it yet, in large part because of the enormous impact of government stimulus checks and additional unemployment benefits. However, as this recession rolls on, some delinquency increase is very likely. That means it’s incredibly important for people, if they still have the financial means, to pay down their debts in earnest as soon as possible because economic times are only likely to get more challenging before they get better.