Americans have less debt for the first time in six years, as they spent less money during the pandemic lockdown, new data from the Federal Reserve Bank of New York shows.
American credit card balances fell by $76 billion, their steepest decline on record, between April and June, which included the most restrictive period of the Covid-19 lockdown. The New York Fed began tracking household debt and credit in 1999.
It’s highly unusual for credit card debt to fall in the spring, according to analysts at the New York Fed. The only other time that happened was during the Great Recession.
Although falling debt sounds like good news, it’s not that simple. The American economy runs on consumer spending. So if people keep their credit cards stored away in their wallets for the rest of the year, the recovery from the recession could be slower.
Total household debt fell by 0.2% to $34 billion in the second quarter. It was the first decline in Americans’ debt burden since the second quarter of 2014, and the largest drop since the second quarter of 2013, the New York Fed said.
Not all types of debt declined between April and June. For example, mortgage balances increased, as a lot of home owners refinanced their housing debt at cheaper rates. Car loans were mostly flat, and student loan balances increased at a relatively slow pace. Payments on federal direct student loans were stopped automatically after the government’s CARES Act came into effect. This forbearance will last until September 30. Interest during this period is also waived.
But non-housing debt balances fell by $86 billion, the biggest decline on record.
The New York Fed report shows that forbearance programs have provided relief to borrowers in need. But at the same time, these programs also mask how much American households are struggling in the face of the millions of job losses.