Last month, the Fed slashed its already-low benchmark interest rate to zero during the current crisis. And the virus rescue package agreed by the Trump administration and Congress will relieve households from the burden of some debts, such as student loans.
But there may be less that policy makers can do to narrow the record gap between borrowing costs for the U.S. government and the ones paid by users of credit cards. The former have been plunging toward zero this year -- while the latter are comfortably above 15%.
About 110 million U.S. adults had credit-card debt at the start of the coronavirus outbreak, according to new data from CreditCards.com. Almost two-thirds of them ran up the debt to pay for necessities like groceries, child-care or medical treatment.
“Many adults were already teetering on the financial edge, reliant on credit cards to pay for day-to-day bills and emergencies at the start of the COVID-19 outbreak,” said CreditCards.com analyst Ted Rossman. “Circumstances can change in an instant. What many believed was manageable credit-card debt has suddenly turned into a situation of uncertainty.”
Going Delinquent
Even before the virus arrived, signs of strain in U.S. consumer finances were reflected in the credit-card market. In particular, they were showing up in delinquencies at smaller issuers of cards, which soared to record highs at the end of 2019. Those kind of lenders are more likely to cater to less-wealthy households, while the bigger banks have shifted their customer profile toward high-rated borrowers since 2008.
Cash Buffer
When it comes to liquid assets such as checkable deposits and currency, middle-class Americans are better off than they were before the crash of 2008, when households had been dipping into their savings for years.
After coming close to rock-bottom, the cohort’s holdings of these assets -- measured here on a per-capita basis, and adjusted for inflation -- rose steadily for most of the last decade, although the advance has stalled over the last couple of years.
Home Equity