Credit card balances spiked in the third quarter to a record $1.08 trillion. Here’s how we got here.

1. Spending has surged due to the pandemic: With many states imposing restrictions on restaurants, retailers and other businesses, consumer spending spiked in order to purchase essential items. This widespread track of spending has caused credit card balances to rise.

2. Low borrowing costs help fuel growth: The Federal Reserve has kept interest rates near historic lows in order to boost economic activity, which in turn has made it attractive for consumers to borrow money and take on more debt. With attractive borrowing costs, credit card balances have increased.

3. Huge unemployment and reduced wages: The coronavirus pandemic has caused many Americans to be furloughed or lose their jobs all together. This in turn has caused many to turn to credit cards to make up for lost wages, as their income has been reduced or eliminated.

4. Stimulus payments: Many Americans received stimulus payments as part of the federal government’s coronavirus response efforts. With a cash infusion of this sort, many consumers have relied on credit cards to purchase items or make up the difference in lost income.

5. Consumers are forgoing other kinds of debt: Americans have reduced the amount of mortgage debt and car loans they take out, most likely due to fear of the consequences arising from COVID-19. This phenomenon has caused some to move toward credit cards, as it is a more flexible form of borrowing.

Online Investing Daily

Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.

Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!