In many ways, the coronavirus crisis has paved the way for better budgeting.
Consumers are paying off their debts and saving more than they have in decades. Many are taking advantage of low interest rates to refinance and lower their monthly bills.
Federal relief, such as stimulus checks, expanded unemployment benefits, and a prolonged hiatus in loan repayments, has even given some a chance to catch up on late payments.
In total, Americans paid off nearly $ 83 billion in credit card debt during 2020, a record, according to a Credit Card Debt Study conducted by personal finance site WalletHub.
That marks only “the second time in the last 35 years that we even ended the year with less credit card debt than we had,” said Jill Gonzalez, an analyst at WalletHub. (The first time was in 2009, in the wake of the Great Recession.)
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At the end of last year, the average household credit card balance fell to $ 8,089, WalletHub found.
Credit cards are one of the most expensive ways to borrow money. Card fees now stand at 15.99%, on average, slightly below an all-time high of 17.85%.
Many experts predict that there could be an increase in consumer spending once more people get vaccinated and Covid-related restrictions are lifted, potentially undoing some of the recent progress made to pay off debt.
According to the National Retail Federation, economic indicators point to potentially record growth in retail sales during 2021.
Consumers have “a lot of purchasing power” that will combine with pent-up demand to provide “growth accelerators,” the trade association said.
The $ 1.9 trillion economic relief and stimulus bill would provide an additional boost. The Democratic-led House plans to vote on the Senate legislation on Tuesday so that President Joe Biden can sign it into law earlier in the week.
“A short-term spending explosion is inevitable,” González said.
“The question is in which direction the pendulum will swing in 2022 and beyond.” “My hope is that consumers internalize the lessons learned during the pandemic and show new frugality.”
WalletHub projects that consumers will add about $ 50 billion in credit card debt in 2021 alone. The personal finance site used data from TransUnion, as well as from the Federal Reserve and the Bureau of Labor Statistics.
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