In the months since the coronavirus pandemic hit and sent millions of Americans to shelter at home, consumers' credit card debt has fallen fast to unprecedented levels.
According to a new report released Thursday from the Federal Reserve Bank of New York, the second quarter of 2020 saw a staggering $82 billion decline in credit card balances. Second-quarter declines in card balances, in general, have only been seen during the Great Recession, and a drop this big in the second quarter of the year hasn't happened since at least two decades ago, the report says.
This sharp decline in credit card balances comes at a time when consumers are spending less in general as unemployment reaches peak highs, leaving many Americans without jobs or income.
While the decrease in consumer spending means less money is being pumped back into the economy, the NY Fed's findings are actually a good thing for Americans' credit.
What a steep decline in credit card balances means
Instead of relying on their credit cards to get through this period of unemployment, cardholders are paying off their balances and taking advantage of assistance from card issuers.
"American households have dialed back consumption and reduced their credit card balances, while forbearances have provided relief to many borrowers who need it," the Fed's report says.
The report also suggests that the federal aid — $1,200 stimulus checks and a $600 boost in weekly unemployment benefits (which ended July 31) — has worked to prevent "large-scale spikes in delinquency" for many borrowers. However, long-term recovery depends on people continuing to limit their credit use, as well as additional government assistance and whether the labor market improves.
If you've chosen to use the stimulus or other windfalls of cash pay off your credit card debt, keep track of what this does for your credit. Payment history is the most important factor that determines your credit score. To more easily track your credit score, check out one of CNBC Select's top credit monitoring services. While there are options for paid services, some programs, including CreditWise® from Capital One and Experian Boost™, come at no cost.
