Consumer confidence appears to be recovering, according to data from the U.S. Federal Reserve. Per the Fed, revolving credit decreased by 0.4% in July – a significant improvement over the previous two quarters of 2020.
Federal Reserve Reports Smaller Consumer Debt Drop In July
Declining consumer debt usually indicates a drop in confidence. While the July drop of half-a-percent usually is a bad thing, given the economic turmoil of the coronavirus (COVID-19) pandemic, this drop is actually a welcome sign for the U.S. economy.
The slight drop in overall outstanding consumer credit is an improvement over the statistics from previous months. According to the Fed, June saw a 2.2% drop in debt, while May saw a dizzying 27.9% drop.
While overall consumer credit card debt dropped in July, the availability of credit increased. Including non-revolving credit accounts (such as mortgages, auto loans, etc.), total consumer credit rose by 3.6%. The 3.6% rise follows a similar, 3.3% increase in June.
The Impact of Coronavirus on Personal Finances
The coronavirus pandemic continues to plague the American economy. While the economy is showing signs of recovery, the number of COVID-19 cases continue to rise, leading to worries of a second spike – and further economic shutdowns. The decline in outstanding revolving credit shows that consumers are still shying away from credit cards, though in smaller numbers than before.
An earlier report from the Consumer Finance Protection Bureau (CFPB) highlighted the immediate impact of the coronavirus on new credit card applications in the spring. The trend, however, is likely shifting, for several reasons:
- The growing popularity of online shopping
- Increasing consumer preference for mobile or contactless payments
- The short-term benefit of extending family finances through credit cards
Tackling Debts During COVID-19
While new credit cards may seem like the ideal option for those struggling with their monthly finances, increasing debt burden can lead to further problems down the line. Fortunately, resources are available to those seeking to reduce their debt burden.
Equifax, TransUnion, and Experian, for example, are offering complimentary credit reports every week through the end of 2020. Additionally, paid services, such as MyFICO, provide advanced security, personalized guidance, and more.
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