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Comment by treyfitty | Hacker News Reader

What is baffling is how the delinquency rates for credit cards have plummeted. Sure, it's easy to say in hindsight that people are buckling down, and that the stimulus payments are making it easier for those in the low income demographic to pay down credit card debt, but that can't be the complete picture.

The economy was put on pause, and small businesses are being decimated. If people need financing, the status quo was to use credit card debt to keep people/business afloat as the debt is unsecured.

As the article posits, the situation is quite unique and very counterintuitive...

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> What is baffling is how the delinquency rates for credit cards have plummeted.

Mortgage deferments! If you can stop paying your mortgage for a while, then you have more money to pay down your credit cards.

Ah, that's a good hypothesis... I didn't consider that.

Rent too. 60% of NY renters didn’t pay in May or June.

This claim appears to be entirely false. I couldn't even find an article that said anything like this.

I think refinancing may also play a role here. Many times you skip a payment, and you now have more cash in your pocket.

It’s not baffling at all, 600 dollars a week is a huge raise for about 50% of the population. Most of the social and economic problems we have are not because people are making bad choices, we have them because people are poor. You’ll see positive effects from that spending for decades, I wouldn’t be surprised if that 600 per week left a cohort of children who grew up a quarter inch taller than they otherwise would have. People forget that Lyndon Johnson’s welfare programs were not in any way a failure, poverty plummeted when things like food stamps were introduced.

Hear, hear!

> If people need financing, the status quo was to use credit card debt to keep people/business afloat as the debt is unsecured.

Was it? How much of the total credit debt held in the US was being used to weather short term cash shortfalls like this?

It seems like a more reasonable hypothesis is that "most" credit debt in fact was being used to finance luxury expenditures by the middle class instead, and that when these were suppressed by the pandemic along with everything else credit spending dropped.

Note also that for people in the first category, the very generous UI and stimulus benefits we available to bridge the gap too. We'll see what happens now that most of these are being rolled back or replaced with more regressive measures like the payroll tax suspension (which only benefits people who are employed).

More accurately, a lot of credit card debt was being used to initially finance emergencies and then (after they’re in debt) to finance required purchases. A lot of middle class families are bogged down by a very costly mortgage or apartment rent and likely an expensive student loan (or two), then have an emergency of some kind - for example a medical bill or losing a job. They don’t have the spare savings to pay for the gap, and they have to make up the difference with a loan of some kind, likely a credit card but perhaps a personal loan or a payday loan or a second mortgage. They’re suddenly in more debt but otherwise the same situation as before. They thus have less cash flow, leading to increased exposure to risk leading to the cycle repeating.

Yeah, but that explanation runs afoul of "why is it better during the pandemic?". Those "emergencies of some kind" are in fact no less likely now than they were in January (unemployment is of course much worse!). Yet credit card debt has been going down. It doesn't add up.

My money is still on the "the pandemic shut down vacations and boat purchases" argument. Obviously some people need to float emergencies on cards, but by numbers that's not where the money was actually going.

One part is that while unemployment is up, a number of large costs are down. Obviously, costs like transportation don’t have to be paid for. On too of that, evictions are suspended so rent payments can be leased and many loans (including mortgages) are pausing minimum payments. Since these big costs are temporarily gone, the remaining income can often cover the remaining costs plus pay off existing debt. Of course, when rent payments and mortgage minimum payments resume, that effect will undo itself.

Came here to basically say this - it’s got me scratching my head for sure. I bet not taking on more debt in uncertain times but many folks don’t have a choice. Any idea what could be driving this?

Reduced cost of living. Lots of my neighbors have relatives that have moved-in recently. Houses are becoming more multi-generational/multifamily.

> Lots of my neighbors have relatives that have moved-in recently.

I haven't noticed this with my neighbors (I'm not sure I would), but amongst my friends and myself I can definitely second this.

It does make me wonder about this line

> The real estate market has been red hot after an initial slowdown during quarantine: (Median house prices)

Maybe it's the case that predominantly rich people are buying/selling right now?

Or families are expanding as relatives are moving in?

Hmm, maybe, several apartments merging to one house could explain it.

If so that bodes ill for apartment-building-owners.

From my personal contacts, it seems that those who can afford it are now moving out of the cities or acquiring rural "vacation" homes. The people I know who are buying are all upper managers or higher in salary.

Our Southern California beach city has seen 60% increase in home sales over last year and the median price is on more higher priced homes than is typical. These are almost all single family homes with space. If you have to work from home, it is nice to have an extra bedroom or dedicated office.

My bet is that some of the biggest categories for personal credit card spending are related to travel and bars/clubs, including the specialized clothing and accessories that surround those activities. Folks may have paid some debt off, but not many were spending for these big activities at all. I imagine there’s a lot of cross-over with demographics that tend to carry more debt or be more impulsive to begin with.

Edit: ...also dining out

Personal anecdote; we didn’t have to pay for after school care or kids summer activities for many months now, allowing us to pay down credit cards.

All sorts of things. No vacations, no evictions, cut credit limits, limited retail, no commutes, etc.

In my neck of the woods, real estate is insane and people are refinancing. Lenders are writing 90% LTV loans at 2.7%

Since interest rates bottomed out, my credit union has been sending twice-a-week promos for $8-$10k personal loans to consolidate and pay off credit card debt. The rates are typically 7-10%, cheap compared to a lot of bad-credit-allowed card issuers, and I've seen some lenders go as far down as 6% on up to $100k over 2-3 year repayment periods.

The loans are probably considered low risk between the combo of stimulus checks, tax refunds (July 15 was the filing deadline so rebate checks are hitting now or soon), juiced-up unemployment benefits, and rent forgiveness/deferral all hitting at once.

So I'd be curious to see if there's any correlation between credit card debt and "personal" (non-mortgage, non-auto) loan balances. It could just be refinancing via consolidation.

My credit cards had been on auto-pay some small amount for a few months. I'm lazy and never logged in and paid the balances. But I had the cash in the bank. So when the crisis hit I paid them off because of the unknowable future.

Do we know if the small business "loans" that were a part of the CARES act would be counted in those figures?

No. They are not a part of the debt highlighted in the Federal Reserve's Consumer Credit Panel.

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