Nearly half (47%) of U.S. adults, or about 120 million people, currently have credit card debt, up from 43% reported in early March, according to a new report from CreditCards.com.
The sudden spike in credit card debt coincides with states issuing stay-at-home orders that have forced millions of businesses to shutter. Alarmingly, 23% of credit card debtors have added to their credit card debt as a direct result of the current Covid-19 pandemic.
Millennial credit card holders have been hit the hardest by the pandemic, with 1 in 3 (34%) going further into credit card debt.
Ted Rossman, an analyst at CreditCards.com, said millennials are suffering financial hardship more the previous generations for two reasons. The sudden and unprecedented spike in unemployment has forced 30 million people to apply for unemployment. This, coupled with millions of younger Americans already living on just enough to get by, has forced many to turn to credit cards to afford basic necessities. “Unlike the previous recessions, 08 and the Dot Com crash, unemployment happened so suddenly that people were forced to rely on their credit cards.”
Schwab’s 2019 Modern Wealth Report revealed that only 39% of millennials (ages 23 to 38) said they have enough saved to support themselves for at least three months if something unexpected happens. Furthermore, 36% of respondents told Schwab that they don’t have any money set aside for an unexpected expense.
Rossman said stagnant wage growth amid rising costs of living hinders millennials’ ability to save. “Adjusted for inflation, average hourly wages have barely budged in 50 years, but some major expenses such as housing and college have grown exponentially.”
Overall, millennials earn nearly 20% less than baby boomers did at the same stage in life, according to a report from nonpartisan think tank New America. Older millennials, those in their mid to late 30s, have now gone through two recessions since entering the job market.
“Between this and the Great Recession, it’s no wonder millennials have had a harder time accumulating assets than Gen Xers and boomers,” Rossman said.
The CreditCards.com report finds that the most common strategy for paying down debt is paying more than the minimum (60%), balance transfers (13%) and paying only the minimum (13%). A combined 13% are not paying anything at all (9%) or don’t have a plan (4%).
Given the scale of the joblessness, Rossman suggests that new solutions should be explored.
“Two months ago I would have told someone to get a transferable balance or personal loan. Now credit cards companies have stopped offering interest-free balance transfers and banks have pulled personal loans because of risk,” he said.
Banks are offering breaks on credit card payments, Rossman noted.
“People need to talk to their credit card companies. Ask for a break, ask to skip a payment; every bank is offering some sort of assistance,” he said.