New figures by the Federal Reserve show U.S. household debt is at an all-time high amid the coronavirus pandemic. According to the Federal Reserve Bank of New York, American households now hold a combined $14.3 trillion in debt. This startling figure is up $155 billion from the first quarter of the year and up $1.6 trillion from the previous record, set during the Great Recession in 2008.
Credit Card Debt on the Rise
The news of an increase in consumer debt coincides with the outbreak of the coronavirus pandemic. According to the study, the number of Americans with credit card debt has risen to 47% since the start of March. Before then, the rate of Americans with credit card debt was 43%.
Sharp Decline in Credit Applications and Demand
While there is a sharp rise in household debt, there is also a somewhat paradoxical decline in demand for new credit. Recently, many lenders began slashing the credit limits of current cardholders, with JPMorgan Chase being one of the more prominent cases. This reduction in credit limits is a way for card issuers to insulate themselves from losses due to potential defaults. There has also been a sharp decline in the number of new credit applications lenders are approving.
Additionally, consumers are turning away from new credit. According to a recent report from the Consumer Finance Protection Bureau (CFPB), credit card applications have declined by 40% since the beginning of March. This dramatic decline is attributable to two factors:
- People with high credit scores holding off on new credit applications
- Individuals with lower credit scores deferring on new applications by the fear of rejection or loss of employment
There is anecdotal evidence that the issuance of stimulus checks may also be playing a role in the decline of new credit applications. With so many Americans still waiting for their stimulus payment, however, this hypothesis cannot be confirmed nor denied.
Tips to Help Solve Household Debt Problems
Regardless of the causes, roughly 140 million Americans are now finding themselves deeper in debt than they were months ago. And, while the tide is slowly turning in the fight against COVID-19, there are still more financial worries looming for many Americans.
Fortunately, there are resources available to those seeking to reduce their debt burden. Equifax, TransUnion, and Experian are now offering free credit reports weekly through the end of 2020. This service allows consumers to monitor their scores closely. Additionally, paid services, such as MyFICO, and TransUnion, provide advanced security, personalized guidance, and more.
Many mortgage and credit card lenders are also currently offering payment relief. Finally, there are debt repayment services, like American Debt Enders, that help find solutions for consumers with too much debt
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