COVID 19 Could Result in Record Credit Card Debt for Consumers
For the first quarter of 2020, American consumers were paying down their credit cards at a record level, but then the world turned upside down due to COVID 19 and the looming credit card debt could be disastrous for American consumers.
Jill Gonzales, an attorney for the financial website Wallet Hub provided details from her office in New York City.
“This year, we actually were paying down more than even in the first quarter at around $60 billion,” said Gonzales. “Unfortunately, now it looks like we’re going to rack up more that $140 billion throughout the rest of 2020, so it doesn’t look like we’re going to keep that up.”
Gonzales said the Federal Reserve and major banks have been accommodating to borrowers, but the credit card bills do have to be paid, nonetheless.
“The banks have been more helpful,” she said. “A lot of people probably would have guessed they would have gotten in front of this and in mid-march they really were ramping up their customer service efforts. They have been giving people grace in terms of missing late payments in forgiving them and even decreasing some interest rates, but at the end of the day you do have to pay back the money you’ve spent, so that’s one thing that will certainly be here to stay.”
Gonzales said over and above the credit card debt itself, and the time it will take to pay off, the longest lasting damage will come to consumer’s credit scores and the impact they will have on personal finances.
“A lot of credit scores will be taking a hit from this, and that affects you for months and years down the road,” she said. “So, if you were thinking of something smaller like buying as new car or something bigger like getting a new home, having fair credit instead of the excellent credit you once had actually really lessens what types of deals are out there for you and even heightens or increases your credit rates.”
Gonzales encourages those with higher credit card balances to work to pay off their cards as soon as possible to maintain good credit.