More Americans Are Paying Their Bank-Issued Credit Cards On Time: What Does This Mean For You?

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DISCLAIMER: As the COVID-19 public health situation evolves, new regulations are being continually issued. This page/story/information may not include the most recent information.CONTRIBUTOR-Ben Gran  Forbes AdvisorPUBLISHED-FEB 18, 2021 7:00AM EST 

Arecent report from the American Bankers Association found that credit card delinquencies are at an all-time low. As of the third quarter of 2020, only 1.53% of bank-issued credit card accounts were 30 days or more overdue.

This is a good sign that people are being responsible, staying disciplined, managing their money smartly and paying their bills on time. It’s also a sign that people have taken advantage of various Covid-19 relief programs and forbearance options offered by banks. Credit card delinquencies—the number of people who are more than 30 days late in paying their credit cards—are a measure of the overall economic health of consumers. It matters for the economy when people are able to manage their credit card payments.

Too many people being late on their credit card payments can indicate bigger economic problems. In the second quarter of 2009, as the Great Recession was declared to be ending in the U.S. the credit card delinquency rate hit a peak of 6.77%, according to data from the Federal Reserve Bank of St. Louis.

When people fall behind on their credit card or other loan payments, they may then go on to default, or fail to repay, those loans. This can cause banks to take losses and can lead to bankruptcy and damaged credit for consumers. If you fall behind on your credit card payments, your card issuer can potentially increase your annual percentage rate, or APR; fall too far behind, and they might cancel your card and send your debt to collections.

What does this historically low credit card delinquency rate mean for you and your finances?

Keep Paying Your Bills on Time

If you carry a credit card balance, and you have enough money coming in to keep paying your bills on time, keep on doing that. Even if cash is tight this month and you can make only the minimum payment on your card, it’s better to make that minimum payment on time and accrue some interest charges, rather than to make a late payment.

It may not sound like much, but, in difficult times, every credit card customer who keeps making their payments is doing their part to create some good news for the U.S. economy.

Having Trouble With Credit Cards? Ask for Help

If you’re having financial hardship, know that you are not alone. Millions of Americans have lost jobs, lost work hours, had to take a pay cut or otherwise have had their incomes affected by the coronavirus pandemic.

If you feel like you may not have enough money to make a credit card payment on time, call your card issuer and talk to the customer service team. Tell them about your situation and ask what hardship programs or forbearance options are available, or what options you may have to adjust your payment schedule.

Especially if you’re a reliable customer and have not missed payments before, your credit card company may be able to work out a different payment arrangement for you.

Use Your Stimulus Checks to Pay Off Debt

Have you received your second ($600 per person) stimulus check yet? You may want to use it to pay off credit card debt, or keep it in a savings account to use as a backup fund to make minimum payments on your credit cards. Especially if the Biden administration succeeds in negotiating with Congress to send a third round of $1,400 stimulus checks, consumers will have even more extra money to manage their debts.

The American Bankers Association report suggested that previous stimulus payments were partly responsible for America’s low delinquency rates: “Consumers have remained cautious about spending amid economic uncertainty and have leveraged their stimulus payments to help ensure they meet their obligations,” says ABA senior economist Rob Strand.

Stay Disciplined…

One of the surprising stories of the pandemic is that many Americans have used this time as an occasion to get more focused on their personal finances. People are trying to save more money, pay off debt, control their spending and live within their means. The record-low credit card delinquency rate is proof of those trends.

“Consumers have done an extraordinary job of spending within their means over the past decade, and they maintained that discipline throughout the recession caused by Covid-19,” says Strand.

If you’re trying to keep your spending under control, if you’re using budget apps, if you’re paying closer attention to where your money goes, all of this is good. Keep up these good habits.

…But Be Ready to Spend Again

Some economic forecasters have predicted that the American economy, as the pandemic ends, is well-positioned for a big boom in consumer spending. People have been stuck at home for months, restaurants have been closed, vacations have been canceled—there is a lot of pent-up demand for travel and other experiences that people have been denied for so long.

The low rates of credit card delinquencies are a good sign that people have been disciplined during the pandemic. But many people may be ready to go out and spend money on those credit cards again, once they feel safe to do so.

After the pandemic, the challenge for American consumers is striking the right balance between thoroughly enjoying life again and maintaining the frugal financial habits developed over the months during which regular activities were curtailed.

Perhaps life after the pandemic will be able to combine the best of both worlds. People may feel free to spend money with their credit cards again, but with a stronger sense of discipline and better awareness of how to manage their credit cards and stay on top of payment due dates. As sectors of the job market continue to improve, American workers and consumers may have more financial strength and confidence in 2021.

“Increased vaccinations paired with additional financial relief from Congress will provide a shot in the arm for the economy,” Strand says. “While many challenges remain, we’re optimistic that consumers will be better positioned to meet their obligations as the economy and labor market heal.”

Historically low credit card delinquency rates are good news for banks and borrowers. Hopefully, it’s also a good sign for the American economy and everyday life beyond the pandemic.

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