Cash was ‘not king’: Many expected financial chaos during the pandemic but it wasn’t all bad

Americans across the board were affected by the COVID-19 pandemic, but financially it wasn’t all bad. Despite millions of job losses and other economic pressures, key indicators such as bankruptcies and loan delinquencies are mostly stable.The gradual winding down of federal assistance programs could hurt consumers, but a much more vigorous job market should help. Here are some of the credit trends that are apparent so far.Credit stress not showing up, yetOne of the great quandaries of the pandemic is how well consumer credit scores have held up. They have actually improved lately and — at 711 on the FICO scale — are at their highest point since at least 2005. High scores help consumers get better deals on credit cards, mortgages and other loans as well as utility services and more. The FICO range is from 300 to 850.New postings: There is a surge in new job openings, but why isn’t there a surge in job candidates?Where’s my tax tefund?: Americans face delays as IRS holds nearly 30M tax returns for manual processingSeveral factors might explain this. One is that credit scores for affluent Americans might have risen more than they fell for those at the low end. Besides, some of the worst-off consumers don’t have a sufficient credit history to have a score.Also, stimulus payments and other relief efforts have eased the pain, at least temporarily, and so have deferred payments on mortgages, student loans and other debts. And people have had fewer outlets to spend money, such as for travel or on restaurant meals.Besides, there’s a lag effect.“It generally takes a few months for the effects … and the accompanying financial strain to start to show up in consumers’ credit reports, in the form of rising balances, credit-seeking behavior and eventually, for some, missed payments,” said Ethan Dornhelm, a FICO vice president in a blog.During the 2007-2009 recession, for example, the credit-score low point wasn’t reached until 2009. Average scores to be reported later in 2021 could reveal more about consumer finances than those provided so far.Renewed focus on mortgagesOver the past year, Americans who own homes have prioritized their mortgage payments over making payments on auto loans and credit cards, according to a new study by credit bureau TransUnion. That hasn’t always been the case, especially when housing prices were dropping as they did a decade ago, but it has been the pattern over the past several years of real estate appreciation.Just 0.75% of homeowners were delinquent on their mortgages as of the third quarter of 2020, TransUnion said, below that for auto loans (1.13%) and credit cards (1.95%).This likely reflects the desire of consumers to protect the equity in their homes, TransUnion said, bolstered by the increased importance of having a secure place not just to live but also to work.Plus, many mortgage borrowers entered accommodation programs after the onset of the pandemic, providing additional breathing room from delinquencies, defaults and foreclosures.Multiple credit cards the keyAnother finding from the TransUnion study was that consumers still place high importance on keeping current on at least one credit card, and the economy-lockdown measures likely reinforced this tendency.“Cash was clearly not king during the early parts of the pandemic,” as millions of consumers made purchases for groceries and other necessities from home rather than venturing to stores, noted Matt Komos, a TransUnion head of research and consulting.Even assuming the health hazards ease, many people will continue to make more purchases online than they did before. Hence the need for plastic. Disputing a credit card charge?: Here are 4 things you need to know.“If you only have one credit card and you were worried about visiting stores at the height of the pandemic, there’s a strong likelihood you (maintained) that card to continue spending and making digital transactions,” he said.However, for people under financial stress who had multiple cards, TransUnion found that some let one or more go delinquent, especially for people who also had various personal loan payments to meet.In short, consumers facing financial hardships “can continue to get by” as long as they have access to at least one credit card, Komos said, so keeping that account in good standing becomes a priority.Student loans and seniorsStudent loan debt has emerged as a major problem for older Americans, and it has gotten worse recently. People 50 and up held 22% of the $1.6 trillion in student loan debt as of 2020, up from 10% of the $455 billion of such debt they held in 2004.“Paying for higher education was never meant to last a lifetime,” noted Gary Koenig, an AARP vice president for financial security.That analysis from the AARP Public Policy Institute means unpaid higher-education loans have become a problem across generations. Having to make loan payments usually slows retirement preparations, too, which is more of a problem for people at higher ages. Older adults have accumulated such debts from their own educational pursuits, by borrowing to finance their children’s education or from co-signing on private loans. About one in four co-signers ages 50 and up have had to make payments because the student borrower — in most cases, their kids — failed to do so.AARP has helped to develop a free, personalized tool for seniors and others, allowing them to find the best student loan repayment options, identify loan-forgiveness possibilities and prepare and file paperwork. Any adult with student loans may use it at no cost after registering at AARP.org/studentloans.Bankruptcy pressures to rise?As with strong credit scores, the number of bankruptcies has run much lower over the past year or so. The total number of filings nationally has lingered below 40,000 since the pandemic broke out in contrast to, say, the 62,877 filings in March 2020, just as the economy went into lockdown mode.Several factors explain this counterintuitive trend.While millions of consumers and businesses have felt money pressures, they were kept afloat by stimulus payments, enhanced unemployment benefits, small-business loans and other forms of relief. That includes provisions specific to bankruptcies such as debt-repayment extensions for individuals who previously had filed for protection.But the benign trend may end soon. The latest national tally of 43,425 filings in March reported by the American Bankruptcy Institute and Epiq was up 39% from February and the highest total since March 2020. Mounting medical bills and business failures are among the catalysts that drive people into bankruptcy.Depending on how the economy fares ahead, and the amount of financial help available, more people might decide to throw in the towel to get a fresh start or to restructure their debts.Reach the reporter at russ.wiles@arizonarepublic.com.


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