Credit Card Debt In America: There’s More Good News Than Bad

In 2020, Americans’ consumer debt rose to over $14 trillion, but in 2021, it appears that the situation many experts expected – a full on debt crisis driven by the pandemic, actually didn’t happen. Despite record high unemployment and many other financial woes, credit card balances and other types of debt went down instead of up. This isn’t to say that debt went away completely, of course as we navigated unprecedented times, there were financial difficulties that did require people to get into more debt to survive, but the outlook isn’t as dire as one might think. 

So if credit card debt went down, what drove this? Let’s explore the reason why consumer debt was surprisingly lower than expected. 

A Cautious Society 

The looming and eventual crisis that was the pandemic and the subsequent lockdowns made everyone understandably nervous about spending, so during the pandemic spending on certain things went down. People knew something significant was coming, so they prepared by cutting back on spending. There was a lot of panic about a Great Recession type crisis, and people braced themselves for a difficult time. When people expect a crisis they change their habits, and make decisions that are good for the wallet in order to get through it, and that could have been why there was less consumer debt than expected. 

Real Estate

If 2020 was a crisis, it was a different flavor of crisis, and it didn’t look the same as 2008. One big difference is that real estate was not the reason for or a victim of the pandemic, actually real estate boomed and thrived through 2020. Homeownership increased, most markets reported low inventory showing that there was high demand and of course, the interest rates were really low so the factors that usually led to a collapse in real estate weren’t present. That meant people could take advantage of real estate to prop themselves up. Some people use the proceeds of selling their home for more money to consolidate or even reduce debt, other people were able to renegotiate their mortgages, and the people who had an understanding of the different reverse-mortgage pros and cons, were able to leverage their home equity. 

Less Lifestyle Spending 

The usual things that drove consumer debt were out of reach thanks to stay-home orders. Things like clothing, travel and other leisure activities can drive a lot of credit card spending. With everyone stuck indoors, things like clothing started to feel quite unnecessary so that kept spending down for a few months. Lifestyle spending definitely contributed to people being crippled by debt, so when those things weren’t present, it kept that part of borrowing down. 


Another reason why we didn’t see such a massive increase in debt is definitely the stimulus. The government stimulus helped a lot of people endure the hard part of the pandemic, and others used the money to pay off debts or invest into other ventures. Because lifestyle spending went down as a result, whatever money people got from the government either went to expenses or to finding a way to better their financial situation.

Savvy Consumers 

Consumers haven’t just become more cautious in times of crisis, they are also more savvy about how they spend their money. For many people, the lessons of 2008 are still heavily resonant today, and there’s a lot more people who are focused on making sure they escape debt and potential financial ruin. People have a keen interest in learning about personal finance, and ways to build wealth, and they’ve become intensely aware of just how costly it is to maintain large amounts of credit card debt. People also use debt intelligently, to make their lives better in a meaningful way. This is also why people didn’t ramp up credit card spending because they are clear on the downsides. 

Credit card and consumer debt has been considered a crisis in America for years, and one only has to look back to 2008 to see the catastrophic effects of it. Surprisingly, the credit card catastrophe that people anticipated in 2020 actually didn’t happen. For many reasons, Americans were able to stave off complete collapse, and even though it was a challenging time, it really could have been a lot worse. There’s still a few months left in 2021 to see how the situation will shape up, especially as the economy is now starting to recover. The lesson is, it’s not all bad news and there have been some encouraging trends that show that the economic fallout of the pandemic is one the nation can recover from. 

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