The economic fallout resulting from the COVID-19 pandemic has put new pressure on the household finances of many Americans. The pandemic itself, its economic fallout, and measures taken to mitigate that fallout have all impacted debt levels in ways that would have been hard to anticipate a year ago.
Our recent report, “Increasing Comfort with Debt Threatens Americans’ Long-Term Financial Health,” explored how American households have become much more comfortable holding higher levels of debt over the past few decades. In 2020, the pandemic reshaped household debt in several new ways:
- A significant decline in mortgage rates in 2020 made it easier for borrowers to finance home purchases, while passage of the CARES Act enabled struggling homeowners to obtain a forbearance on their mortgage payments.
- Outstanding auto loan balances increased by $40 billion in the third quarter of 2020 over the same period in 2019.
- Student loan debt also continued to increase in 2020 as the CARES Act temporarily suspended the required repayment of most federal student loans and the accrual of interest. Once these payments are required to resume, we may see an uptick in individuals and families struggling under the weight of these loans.
- Conversely, aggregate credit card debt decreased by $10 billion in the third quarter of 2020, following a $76 billion decline in the second quarter1. While that’s good news, it remains to be seen whether Americans will continue to reduce their credit card debt once the pandemic begins to be brought under control and business and travel open more broadly.