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What is baffling is how the delinquency rates for credit cards have plummeted. Sure, it's easy to say in hindsight that people are buckling down, and that the
by treyfitty 6y ago
What is baffling is how the delinquency rates for credit cards have plummeted. Sure, it's easy to say in hindsight that people are buckling down, and that the stimulus payments are making it easier for those in the low income demographic to pay down credit card debt, but that can't be the complete picture.
The economy was put on pause, and small businesses are being decimated. If people need financing, the status quo was to use credit card debt to keep people/business afloat as the debt is unsecured.
As the article posits, the situation is quite unique and very counterintuitive...
- BolexNOLA 6y agoCame here to basically say this - it’s got me scratching my head for sure. I bet not taking on more debt in uncertain times but many folks don’t have a choice. Any idea what could be driving this?
- sambull 6y agoReduced cost of living. Lots of my neighbors have relatives that have moved-in recently. Houses are becoming more multi-generational/multifamily.
- gpm 6y ago> Lots of my neighbors have relatives that have moved-in recently. I haven't noticed this with my neighbors (I'm not sure I would), but amongst my friends and myself I can definitely second this. It does make me wonder about this line > The real estate market has been red hot after an initial slowdown during quarantine: (Median house prices) Maybe it's the case that predominantly rich people are buying/selling right now?
- slowbait 6y agoOr families are expanding as relatives are moving in?
- gpm 6y agoHmm, maybe, several apartments merging to one house could explain it. If so that bodes ill for apartment-building-owners.
- endogui 6y agoFrom my personal contacts, it seems that those who can afford it are now moving out of the cities or acquiring rural "vacation" homes. The people I know who are buying are all upper managers or higher in salary.
- mleo 6y agoOur Southern California beach city has seen 60% increase in home sales over last year and the median price is on more higher priced homes than is typical. These are almost all single family homes with space. If you have to work from home, it is nice to have an extra bedroom or dedicated office.
- ldayley 6y agoMy bet is that some of the biggest categories for personal credit card spending are related to travel and bars/clubs, including the specialized clothing and accessories that surround those activities. Folks may have paid some debt off, but not many were spending for these big activities at all. I imagine there’s a lot of cross-over with demographics that tend to carry more debt or be more impulsive to begin with. Edit: ...also dining out
- mleo 6y agoPersonal anecdote; we didn’t have to pay for after school care or kids summer activities for many months now, allowing us to pay down credit cards.
- Spooky23 6y agoAll sorts of things. No vacations, no evictions, cut credit limits, limited retail, no commutes, etc. In my neck of the woods, real estate is insane and people are refinancing. Lenders are writing 90% LTV loans at 2.7%
- trynewideas 6y agoSince interest rates bottomed out, my credit union has been sending twice-a-week promos for $8-$10k personal loans to consolidate and pay off credit card debt. The rates are typically 7-10%, cheap compared to a lot of bad-credit-allowed card issuers, and I've seen some lenders go as far down as 6% on up to $100k over 2-3 year repayment periods. The loans are probably considered low risk between the combo of stimulus checks, tax refunds (July 15 was the filing deadline so rebate checks are hitting now or soon), juiced-up unemployment benefits, and rent forgiveness/deferral all hitting at once. So I'd be curious to see if there's any correlation between credit card debt and "personal" (non-mortgage, non-auto) loan balances. It could just be refinancing via consolidation.
- sixothree 6y agoMy credit cards had been on auto-pay some small amount for a few months. I'm lazy and never logged in and paid the balances. But I had the cash in the bank. So when the crisis hit I paid them off because of the unknowable future.
- fallingfrog 6y agoIt’s not baffling at all, 600 dollars a week is a huge raise for about 50% of the population. Most of the social and economic problems we have are not because people are making bad choices, we have them because people are poor. You’ll see positive effects from that spending for decades, I wouldn’t be surprised if that 600 per week left a cohort of children who grew up a quarter inch taller than they otherwise would have. People forget that Lyndon Johnson’s welfare programs were not in any way a failure, poverty plummeted when things like food stamps were introduced.
- TomSwirly 6y agoHear, hear!
- newacct583 6y ago> If people need financing, the status quo was to use credit card debt to keep people/business afloat as the debt is unsecured. Was it? How much of the total credit debt held in the US was being used to weather short term cash shortfalls like this? It seems like a more reasonable hypothesis is that "most" credit debt in fact was being used to finance luxury expenditures by the middle class instead, and that when these were suppressed by the pandemic along with everything else credit spending dropped. Note also that for people in the first category, the very generous UI and stimulus benefits we available to bridge the gap too. We'll see what happens now that most of these are being rolled back or replaced with more regressive measures like the payroll tax suspension (which only benefits people who are employed).
- gbear605 6y agoMore accurately, a lot of credit card debt was being used to initially finance emergencies and then (after they’re in debt) to finance required purchases. A lot of middle class families are bogged down by a very costly mortgage or apartment rent and likely an expensive student loan (or two), then have an emergency of some kind - for example a medical bill or losing a job. They don’t have the spare savings to pay for the gap, and they have to make up the difference with a loan of some kind, likely a credit card but perhaps a personal loan or a payday loan or a second mortgage. They’re suddenly in more debt but otherwise the same situation as before. They thus have less cash flow, leading to increased exposure to risk leading to the cycle repeating.
- newacct583 6y agoYeah, but that explanation runs afoul of "why is it better during the pandemic?". Those "emergencies of some kind" are in fact no less likely now than they were in January (unemployment is of course much worse!). Yet credit card debt has been going down. It doesn't add up. My money is still on the "the pandemic shut down vacations and boat purchases" argument. Obviously some people need to float emergencies on cards, but by numbers that's not where the money was actually going.
- 6y ago
- Crye 6y agoDo we know if the small business "loans" that were a part of the CARES act would be counted in those figures?
- treyfitty 6y agoNo. They are not a part of the debt highlighted in the Federal Reserve's Consumer Credit Panel.
- rectang 6y ago> What is baffling is how the delinquency rates for credit cards have plummeted. Mortgage deferments! If you can stop paying your mortgage for a while, then you have more money to pay down your credit cards.