Debt surges during pandemic

As the two-year anniversary of the coronavirus pandemic looms, many Americans are still experiencing its financial and credit impact — but in very different ways. In a new survey by LendingTree®, 30% of Americans went into debt while another 30% say they actually improved their credit score. Among those who are dealing with debt, nearly half (48%) put the blame on inflation while 34% cite income loss.

Key findings

  • The coronavirus pandemic increased credit card debt for 30% of Americans, with inflation (48%) and income loss (34%) cited as the top two debt drivers. Even with the expanded child tax credits, parents with kids under 18 (40%) were more likely than any other demographic analyzed to add debt during the pandemic.
  • Many consumers experienced difficulty paying bills on time during the pandemic. More than a quarter of cardholders (28%) paid their credit card bills late at least once during the pandemic, with parents of young children (45%), millennials (42%), those earning less than $35,000 (36%) and women (33%) facing more late payments than other consumers.
  • Card closures and credit limit cuts were common at the start of the pandemic, and some card issuers continue to do so. In the past 6 months, 14% of cardholders say their issuer slashed the limit on one of their cards, and 13% say their card was closed involuntarily by the issuer.
  • More than 1 in 5 consumers (22%) haven’t checked their credit score at all during the pandemic, while others saw their scores improve. Though many Americans faced significant economic challenges, 30% say their credit scores are higher now than they were at the start of the pandemic.
  • Consumers are eyeing credit card rewards more than ever. About a third (32%) of Americans have applied for a new credit card during the pandemic, and rewards were the No. 1 reason. Another 14% changed their primary credit card to maximize rewards, and 21% are cashing in on credit card rewards more often.

“There was a huge disparity in how Americans were affected by the pandemic financially, no question about it,” says Matt Schulz, chief credit analyst at LendingTree. “Some folks emerged from the last two years ahead of the game, while others had their financial worlds absolutely devastated.”

Credit card checkup: 5 steps to take today

No matter which credit pandemic tale you relate to, these key strategies can help you maintain your credit health.

  1. Keep tabs on your credit score and credit report. Knowing where you stand is important so you can decide if your budget needs some attention. Everyone can access their free credit report from the three major credit bureaus.
  2. Use technology to your advantage. One of the best ways to avoid late payments, which can wreck your credit score, is to set alerts and use your credit account’s other tools. “Automatic payments can make paying late a thing of the past, and they’re typically easy to set up,” says Schulz. Just don’t get in the habit of paying only the minimum due, he adds, as that can lead to long-term debt.
  3. Analyze spending to see if current cards are providing value.  How you spend can change dramatically over the years, and what you have in your wallet may not fit your lifestyle anymore. “Take the time to review what rewards and perks your card offers, along with what categories you spend the most on and make sure that they match up. If they don’t, it is probably time for a new card,” Schulz adds.
  4. Get serious about debt payoff. One tool that may help: Balance transfer cards that offer introductory periods of 0% or low APRs. “They can make a huge difference for folks with credit card debt,” says Schulz. “Not only can they reduce the amount of interest you pay and how long it takes to pay off your debt, it can also streamline your finances.”
  5. Review monthly and annual budgets. “Budgets are living documents. They need to be reviewed, tweaked and updated regularly to make sure they’re effective,” says Schulz. “Life has changed a lot for many of us in the past two years, so if you haven’t checked your budget recently, now is a great time to do so.”

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