There's Great News About Americans' Credit Card Debt

U.S. consumers have paid down billions in credit card debt.

Millions of Americans have credit card debt. This debt can be extremely expensive because credit card interest rates are high. Those high rates, combined with low minimum payments, can make it difficult for many people to pay off what they owe. This can leave cardholders stuck in debt for decades.

That's why new data from the New York Federal Reserve is such good news. The Center for Microeconomic Data operated by the Federal Reserve released a Household Debt and Credit Report for the first quarter of 2021. It shows that Americans have made remarkable progress paying off their credit card balances in recent months.

Americans paid off close to a record amount of debt

According to the Federal Reserve's data, credit card balances fell by a whopping $49 billion in the first quarter of 2021. This is a huge amount of debt paid down. In fact, this quarterly decline was the second largest ever recorded since the Federal Reserve began tracking the metric in 1999.

The impressive debt reduction continues a recent trend: Since the end of 2019, Americans have dropped their collective credit card balances by an amazing $157 billion.

The fact that Americans nearly broke records with their recent debt paydown means that many more people have gotten closer to becoming debt free or have even paid off their credit card balances in full. Eliminating this credit card debt can provide more flexibility in their monthly budgets -- and ultimately put more money in their bank accounts instead of it being sent to creditors.

Why did Americans pay off so much debt?

There are a few reasons why so many people were successful in repaying their credit card balances in 2020.

A global pandemic led to significant constraints on buying opportunities. Because of COVID-19, people couldn't travel much, go out to eat, or engage in many leisure activities. And with many working from home instead of in an office, commuting costs fell as well.

The government also provided a substantial amount of financial help to Americans over the course of the pandemic, including stimulus checks and expanded unemployment benefits. Many Americans used this cash from Uncle Sam to help repay what they owed on their credit cards.

You can keep making progress toward debt payoff

If you've begun making progress on your debt during the pandemic, you don't necessarily have to stop your efforts just because restrictions are loosening and the threat of the virus is waning.

You likely want to get back to living your life and doing the activities that you've missed out on for so long. And there's no reason that you can't do that. However, while you shouldn't stay locked in your house and forgo all fun just to become debt free sooner, you can reintroduce your activities slowly while retaining some money for debt payoff.

If you were spending $250 a month dining out before the pandemic, for example, consider whether you could spend half that amount and devote the other half to extra debt payments. Even going out once a month may feel like a treat after not being able to do so at all, so there's no reason to immediately ramp back up to your full pre-pandemic spending habits.

Chances are good you've gotten used to eating at home more and spending less on leisure during this past year. If you keep up some of those lockdown limitations, you may be able to finish paying off your credit cards for good. And that may be well worth doing.