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Drowning in the debt owed to COVID-19? How the virus created the perfect credit card storm and how to deal with it

 


Although not everyone gets sick from COVID-19, we all feel the widespread effects of the virus. The pandemic is particularly wreaking havoc on the financial health of Americans. Before the virus reached the United States, many were already experiencing financial difficulties. A study in 2019 found that almost half of 45% of respondents said they had $ 0 in a savings account. Another 24% reported having less than $ 1,000 in savings. The main reason cited by respondents for not having enough savings was that they lived from paycheck to paycheck. Nearly 33% said that this barrier prevented them from saving, and about 20% said that a high cost of living prevented them from saving more.

Add to that, of course, the huge collective credit card debt that the Americans have incurred. According to the Federal Reserve, total credit card debt has increased year on year and exceeded $ 1 trillion in 2019.

Not enough savings, not enough income and already trying to manage high credit card bills. Then COVID-19 enters the picture. In six weeks, almost 30 million jobs are lost. It is 30 million people, who, on the basis of global statistics, probably did not have a large emergency savings fund and had already accumulated credit card debts. With no income and no cash savings, where else can they turn to credit cards.

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CreditCards.com released a study Monday morning showing the results of COVID-19 on our country’s credit card debt. Almost half (47%) of American adults, or about 120 million people, currently have credit card debt, up from 43% in early March. In addition, 23%, or about 28 million American adults, have increased their credit card debt as a direct result of the COVID-19 epidemic.

Here are the highlights of the study. The full study can be found here.

  • Unfortunately, millennial credit card holders (aged 24 to 39) were the hardest hit; more than 1 in 3 (34%) in debt went deeper into the red because of the pandemic against 23% of Generation X (40-55 years) and 15% of baby boomers (56-74 years).
  • Overall, 45% of credit card debtors are currently stressed by their credit card debt, including 30% somewhat stressed and 15% very stressed.
  • More than half (58%) of millennials in credit card debt are stressed, compared to 49% of Generation X and 34% of baby boomers.
  • The most common credit card payment strategies among American adults with credit card debt include paying more than the minimum (60%), balance transfer (13%), and paying only the minimum (13%). Unfortunately, a total of 13% pays nothing at all (9%) or has no plan (4%).

With no clear end to the pandemic in sight, there are a few things you can do now if you find yourself above your head. Above all, do nothing. It is so easy to become paralyzed by fear, rising bills and fees. The first step is to call your credit card company. They are more willing to work with clients now because of the effects of the coronavirus. Explain your situation to them and ask for your options. They can allow you to skip a few payments, create a new payment schedule, waive fees, lower your interest rates, or lower your minimum payment amount. It can’t hurt, and at best, you will get much-needed relief.

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