Rising household debt in 2020 could have snowball effect
Now, nearly 9 months into the pandemic-caused recession, many have dug themselves into a much deeper financial hole.
Household debt has soared to record highs during the COVID-19 pandemic, according to a recent survey from Clever Research.
At the end of the second quarter, U.S. households held more than $4.1 million in non-mortgage debt in the form of student loans (35 percent), auto loans (29 percent), credit cards (19 percent) and other loan types (20 percent).
The average American reported having $41,559 in non-mortgage debt and having taken on an additional $7,512 in debt since this time last year.
“Americans were woefully unprepared for the financial crisis the coronavirus brought on, and many — especially younger and lower-income earners — have been hit hard as a result,” said Francesca Ortegren, Ph.D., data science and research product manager for Clever Real Estate and author of the survey report. “Overall, Americans’ spending and saving behaviors have changed substantially over the course of the pandemic, and many will likely continue to struggle until joblessness drops to pre-pandemic levels and the economy evens out.“
The ongoing debt crisis puts many Americans in a tough spot. Thousands lost jobs earlier this year, while the majority had little to nothing in savings as a safety net.
In fact, 50 percent of Americans were worried they would run out of savings after one month, according to a March 2020 Clever Research survey. Now, nearly nine months into a recession, many have dug themselves into a much deeper financial hole.
Key findings from the survey include:
- Fifty-two percent of Americans carry a balance on their credit card, and 79 percent of them carry more than $1,000 in credit card debt month-over-month.
- Nearly one-quarter said they have dipped into their savings to help cover expenses during the pandemic, and 30 percent have spent more than $5,000 of those savings.
- Eighty-one percent of Americans agree that a second stimulus check of similar value as the first would be a huge help, and 46 percent of Americans would use a stimulus check to simply pay their bills.
- Millennials are more likely to struggle financially in 2020 than baby boomers: They’re three times as likely to miss or defer a credit card payment, twice as likely to miss or defer a mortgage payment and twice as likely to miss or defer a medical bill.
“The surge in debt is problematic for a variety of reasons, but most notably, 54 percent of Americans said they’ve missed or deferred at least one payment in 2020 compared to the 29 percent who were worried about missing a payment in January,” Ortegren concluded. “People have had to spend some or all of their emergency funds even after receiving help via the economic stimulus money earlier this year and are beginning to rely more heavily on credit cards to help cover basic living expenses.
“Those shifts could have long-term, dire financial consequences by increasing people’s debt through interest charges and late fees — a snowball effect that can cause Americans to feel hopeless about their financial situation.”
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