Despite the economic hardships that abound, it seems that many Americans are actually managing to eliminate some of their most expensive debts. According to WalletHub’s latest data, U.S. consumers paid down a total of $118 billion in credit card debt during the first half of 2020, amounting to an all-time record. Surprisingly, this paydown also comes amid high unemployment and other financial challenges associated with the pandemic and subsequent shutdowns. However, it seems that stimulus benefits including the first round of $1,200 checks that were sent out earlier this year have allowed some consumers to not only stay afloat but also reduce their overall debt.
Looking specifically at the second quarter of the year, consumers paid off a total of $58.1 billion. For context, balances increased by $35 billion in Q2 2019 and by $26 billion during the same quarter in 2018. While Q1 paydowns are common given the post-holiday positioning, second-quarter reductions are rare, with this being the first in more than three decades.
WalletHub also ranked the 50 states in terms of which had the greatest reduction in credit card debt during the quarter. Since the list focused on the total amount paid down, larger states in the union had a bit of an advantage — which was certainly evident in the top five. With a total paydown of more than $7.2 billion, California was first on the list. On a per-household basis, the average paydown last quarter was $558 for a new average balance of $9,472. Texas wasn’t too far behind those figures, with an average $550 paydown per household, although their total $5.2 billion left them a distant second. Rounding out the top five were Florida ($3.9 billion), New York ($3.7 billion), and Illinois ($2.3 billion).
In terms of household paydowns, two states outside of the contiguous 48 saw the largest averages. With an average paydown of $663, Alaska was well ahead of most other states — with the exception of Hawaii, which wasn’t far behind with $647. However, both states also maintain some of the largest average household debt figures at $11,250 and $10,987 respectively. In fact, the duo were the only two states to see five-digit averages last quarter.
Noting the rarity of what was observed last quarter, WalletHub analyst Jill Gonzalez commented, “This is the first time in more than 30 years that consumer credit card debt has declined during the second quarter of the year. A Q2 paydown of any amount would have been noteworthy, and one of this magnitude is big news for Americans’ wallets.” Gonzalez also reflected on the potential reasons for the paydown, stating, “The fact that U.S. consumers paid off $58.1 billion in credit card debt during the second quarter of 2020 is largely attributable to the generous unemployment benefits that laid-off workers were still receiving at the time by Congressional decree, as well as the overall efforts people have made to cut back on spending and generally de-risk their finances in the face of historic uncertainty. It might seem counterintuitive that debt levels would decline when so many people are out of work, but that’s also when people become most frugal and when credit card issuers get stingier with approval decisions and credit limits.”
Obviously these credit card debt paydown figures are a silver lining to what has otherwise been a troublesome time for Americans. It’s also worth noting that many of the benefits that likely helped fuel this paydown trend have either been reduced or eliminated since. Therefore it will be interesting to see where the third-quarter figures land and if this interest in paying down debt can last.
The post Americans Pay Down a Record $118 Billion in Credit Card Debt appeared first on Dyer News.