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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
by 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 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.
- gbear605 6y agoOne 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.