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> 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

> 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 ago
More 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 ago
  Yeah, 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.
  - gbear605 6y ago
    One part is that while unemployment is up, a number of large costs are down. Obviously, costs like transportation don’t have to be paid for. On too of that, evictions are suspended so rent payments can be leased and many loans (including mortgages) are pausing minimum payments. Since these big costs are temporarily gone, the remaining income can often cover the remaining costs plus pay off existing debt. Of course, when rent payments and mortgage minimum payments resume, that effect will undo itself.

gbear605 6y ago

More 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 ago
Yeah, 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.
- gbear605 6y ago
  One part is that while unemployment is up, a number of large costs are down. Obviously, costs like transportation don’t have to be paid for. On too of that, evictions are suspended so rent payments can be leased and many loans (including mortgages) are pausing minimum payments. Since these big costs are temporarily gone, the remaining income can often cover the remaining costs plus pay off existing debt. Of course, when rent payments and mortgage minimum payments resume, that effect will undo itself.