While total credit card balances have declined significantly during the COVID-19 pandemic, this overall improvement masks some significant challenges at the household level. Many tenants are caught in the crosshairs, and the situation could worsen following the August 26 Supreme Court ruling that struck down the CDC’s moratorium on evictions.
Money Management International (MMI), the country’s largest nonprofit credit counseling agency, reports that about half of its recent counseling sessions were about housing issues, up from about one in four before the pandemic. Tenants who turned to MMI for help in 2021 racked up an average of nearly $ 25,000 in credit card debt, said Michelle Jones, the agency’s director of external affairs. In 2019, the average was around $ 3,000. This indicates that many have racked up substantial living expenses on their credit cards because they fell behind on their housing bills.
For context, the national average credit card balance is $ 5,313, according to Experian. Just over half of active credit card holders carry month-to-month balances, according to the American Bankers Association. And it is a very expensive debt; Bankrate sets the average credit card interest rate at 16.21%.
Multiple crises collide
Some 11.4 million American adults were behind on rent payments in late June and early July, a Center on Budget and Policy Priorities investigation found.
The pandemic is making a comeback, fueled by the Delta variant. The seven-day moving average of new COVID cases in the United States was 153,245 on September 1, as measured by the CDC. This was well above the seven-day moving average (88,047) recorded exactly one month earlier.
While total credit card balances were 15% lower in the second quarter of 2021 compared to the fourth quarter of 2019, according to the New York Fed, MMI’s experiences show how this improvement was not shared equally by all Americans.
A deeper dive into this Bureau of Labor Statistics data reveals a similar trend: general improvements mask the fact that not everyone is doing better–not by far.
The unemployment rate peaked at 14.7% in April 2020 and fell to 5.4% in July 2021. Although this is substantial progress, the unemployment rate is still higher today than it was before the pandemic. In February 2020, unemployment was only 3.5%. This means that the number of unemployed Americans rose from 5.7 million in February 2020 to 8.7 million in July 2021, and that doesn’t even include those who have stopped looking for work for various reasons.
The labor force participation rate, which includes workers and those actively looking for work, fell 1.6 percentage points during the pandemic.
What to do if you are having trouble
While Congress has designated more than $ 45 billion in rental assistance in late 2020 and early 2021, the rollout has been bumpy and most of that money has not been spent. The Consumer Financial Protection Bureau has a useful list of rental assistance programs available to tenants and landlords. Certified housing advisers such as Money Management International can also help. The end of the moratorium on CDC evictions should make the distribution of this aid even more urgent. (By the way, some cities and states still have moratoriums on evictions, so find out about policies in your area.)
If you have good credit but have accumulated debt, consider getting an introductory 0% balance transfer credit card. Suspending the interest clock for up to 20 months can save you a lot of money. Just make sure you are making progress–you shouldn’t see this as a shell game of moving debt from one card to another, and ending up where you started. Finding ways to increase your income or reduce your expenses can boost your debt repayment strategy.
For those with lesser credit, or even if your credit score is strong but you need a little extra nudge in the right direction, reputable nonprofit credit counseling agencies such as MMI can be extremely helpful. In addition to providing great advice tailored to your individual situation, they can negotiate lower rates with your creditors and consolidate your monthly bills into one payment you can afford. A common scenario is something like a four year payback with a 7% interest rate. These numbers are similar to the personal loan terms available to people with good credit, but accessible to a much wider audience.
Finally, while the window to appeal for goodwill may have expired–if you are behind on your bills, you can only buy a limited time from a landlord, credit card issuer or other creditor–I still think communication is a good idea. Don’t ignore the problem. At the very least, acknowledge that you are late and come up with a solution. Consider asking for more time to pay them off, a lower interest rate, or another break.
If nothing else, keep the lines of communication open. Hiding is not the answer. Face issues head-on before being sued or stranded in a corner where bankruptcy and eviction are your only answers. Getting out of debt is not easy, but it is possible. Don’t be afraid to ask for help along the way.
A question about credit cards? Email me at [email protected] and I would be happy to help.