How do you view your credit card? As a convenient way to make purchases and earn rewards? As a financing tool to spread out the cost of large purchases? As a way to get over rough patches? About half of U.S. consumers with a credit card use it as a means of payment and pay the full balance due every month. The other half use credit cards as a financing tool.
New data releases from the Survey of Household Economics and Decisionmaking
(SHED) and the Survey of Consumer Payment Choice (SCPC) show that eight in 10 U.S. adults had a credit card in 2020 and, of those, about half carried an unpaid balance at some point during the prior 12 months.
In addition, both surveys found that credit card debt declined from 2019 to 2020. SHED reports that fewer card holders carried a balance, and card borrowers reduced their outstanding balances. Similarly, the SCPC found that that 51.3 percent of card holders carried a balance sometime in the preceding 12 months—the lowest share since 2015. In addition, 51.8 percent of these revolvers reported their balances to be lower than a year ago.
A paper from the Federal Reserve Board of Governors attributes the decline in balances to a sharp decline in credit card transactions at the start of the COVID-19 pandemic in March and April 2020 and also notes a decline in the origination of new credit card accounts at that time. And a New York Fed survey found that about one-third of the value of the first round of stimulus payments under the CARES Act was used to pay down debt.
The SHED survey report indicates that while many borrowers overall reduced their debt, people who were laid off at some point in the past year increased their credit card debt (39 percent compared to 24 percent of those not laid off). This aligns with other research findings that, as the SHED report puts it, “financial challenges in 2020 were uneven.” The New York Fed survey, for example, found that high-income households saved proportionately more of their stimulus payments: 40.8 percent for household income greater than $75,000 compared to 31.2 percent for household income $40,000 or less.
The drop in revolvers could have implications for the use of credit cards going forward, because credit card revolvers are more likely than convenience users to have and use debit cards instead of credit cards, although many other factors—including general economic conditions—will come into play.
By Claire Greene, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed