Strategies to Tackle Debt

Millions of Americans facing furloughs and layoffs turned to credit cards to stay afloat. Here’s how to get out from under burgeoning balances.

DANIEL BORTZ

WHEN THE PANDEMIC HIT AND the restaurant that Eric S. managed in Brighton, Mich., closed its doors temporarily, Eric filed for unemployment insurance benefits. When the business reopened a couple of months later and Eric returned to work, his hours were cut in half.

Although Eric and his wife managed to keep up with their mortgage payments, the couple found themselves strapped for cash and began to fall behind on their credit card bills. By September, they had accrued about $13,000 in credit card debt, and Eric’s credit score had dropped nearly 75 points, to the low 600s. “I felt like I was losing control,” he says. “It also put a lot of stress on our marriage.”

The couple sought out a credit counselor, who helped them retool their budget—getting rid of their Hulu and Netflix subscriptions alone saved them $70 a month—and begin paying down their debt. Just two months later they had shaved $3,000 off their total balance. “We’ve learned how to manage our money a lot better from this whole experience,” Eric says.

THE DEBT DIVIDE

The coronavirus crisis has been a double-edged sword for Americans in terms of debt. First, the good news: After receiving an infusion of cash from stimulus checks last spring, millions of consumers used their relief funds to pay down debt. On April 15, 2020, as the first major wave of checks hit Americans’ bank accounts, there was a near-instantaneous increase in debt payments, according to a TrueAccord study of data from 12 million U.S. consumers.

Moreover, a majority of Americans have managed to stay on top of their credit card bills, an October LendingTree study found. The survey, which analyzed credit reports of nearly 7,300 consumers who had paid off at least $1,000 in credit card debt in a month’s period, found that nearly 6 in 10 borrowers (59%) maintained a zero balance on their credit card three months later. (The average FICO score even hit an all-time high of 711 in July, according to Fair Isaac Corp., the data analytics firm behind the credit rating.)

However, “in some ways it’s a tale of two cities,” says Bruce McClary, a spokesman for the National Foundation for Credit Counseling (NFCC), which represents nonprofit credit counseling agencies. “While a number of Americans have been able to pay down their credit card debt during the pandemic, some people are really struggling because they’ve been laid off or have had their hours cut.” Many of those people don’t have a financial safety net, he says, “so they’ve had to fall back on credit cards.”

There’s also a large number of Americans grappling with unpaid medical bills because of the pandemic. By last June, roughly 7.7 million workers had lost jobs with employer-sponsored health insurance since mid-March, a Commonwealth Fund report found; these health plans covered 6.9 million dependents. And despite some job gains in the third quarter of 2020, nearly 7 million Americans were still collecting unemployment insurance at the end of October, the U.S. Department of Labor reports.

The U.S. saw more than 65,000 COVID-19 hospitalizations between March 1 and October 24, according to data from the Centers for Disease Control and Prevention. Nationally, the average charge for a hospital stay for a COVID-19 patient was $73,300, according to FAIR Health Inc., a nonprofit health care industry tracker.

CONQUERING CREDIT CARD DEBT