Absent new stimulus, wealthy pay off credit cards, while others dive deeper into debt

OAKLAND, Calif. - Many people, including those who cannot access unemployment, are relying more heavily on credit cards to make ends meet, absent another stimulus, sufficient unemployment or a living-wage job.

But credit card data also shows that's not the whole story. Balances have declined during the pandemic as higher-income people use this time to pay down debt.

Although using credit is a better option than high-interest loans, experts say that the consequences of a poor credit score can include difficulty obtaining housing or even employment. 

These consequences are yet another example of the “K-shaped recovery” wherein high earners are recuperating, or even increasing their wealth during the economic downturn, and lower-income earners are flailing.

In the Bay Area, where inequality is hyper-visible, many unemployed or under-employed people interviewed said they feel forgotten, and are suffering greatly to make ends meet for their families. 

“There are many middle-income, middle wage workers and their families who struggle to make ends meet without a single paycheck...this is not an isolated experience of a few people that are particularly low wage or low income,” said Elise Gould, a senior economist at the Economic Policy Institute. “This is true for the vast majority of people in this country who don't have, let's say, $400, to pay for an unexpected expense.”

These folks may very well turn to credit cards, Gould said, which can have long term implications for their ability to secure credit in the future. 

“Another big problem that's happening right now is that people are facing eviction, because they didn't have the money to pay for their rent,” Gould added. “And the ramifications of those kinds of financial losses on your record, can be long term and can offer, really, hardship in the future in terms of being able to secure credit, being able to rent another place.”

Alexander Rowe, who was approved for unemployment insurance, received a non-functional EDD debit card in June. He couldn’t get in touch with anyone at the Employment Development Department after repeated attempts to fix the error; after waiting for months, he was out of money. He turned to his credit cards to make ends meet, and has nearly maxed them all out.

Rowe said that between his family’s savings of $4,000 and the total of all his credit, he had about $15,000. He’s now down to $2,000. His family eats differently, cut back on all entertainment, and lives with profound day-to-day apprehension. 

“When it comes to the kids, you don't have a choice--you have to do what they need. So, when it comes to that, credit card is your only option. It’s what’s saving the day.”

Brennan Anderson, who works as a bartender in Roseville, applied for unemployment benefits in March, and was unable to receive benefits he was ineligible for four months. He went back to work earlier than he felt safe because he didn’t have enough money to pay his bills, and because relying on a credit card was untenable. 

“I have credit card debt,” he said. “...credit card debt piled up, you know, and I still have other bills before this stuff. You know, I'm risking my son's life by going to work, and working in a restaurant meeting new people all the time. No telling, what, if they have COVID or not.”

According to research from the Economic Policy Institute, there are two job seekers for every job opening in the country. 

“For every 20 workers who were officially counted as unemployed, there were available jobs for only 10 of them,” the paper states. “That means, no matter what they did, there were no jobs for 6.6 million unemployed workers.”

Suzanne Martindale, senior policy counsel for Consumer Reports’ advocacy branch, said that using a credit card is better than using a high interest loan, and that “the sad story is that the people that are disproportionately already the most subject to discrimination and predatory lending, are also sometimes, more often than not, the same essential workers who are struggling more.”

At the same time, “people that are in white collar industries, who are knowledge workers who can work from home” are saving money. Those people are probably not commuting, and can take advantage of federal student loan suspension.

“And so there are some people who may be paying down their credit card debt as opposed to racking it up,” she said.

Alex Horowitz, a researcher for Pew’s consumer finance project, said that the data to show people are struggling would not surface via credit scores for some time.

“Missing bills, high credit utilization--that takes a little while to show up in credit scores overall,” Horowitz said. “So that's why credit scores tend to change after adverse financial events have already happened.”

Tami Velez, a Warren County-based rideshare driver who is disabled, was out of work early on in the pandemic, and said the $600 unemployment supplement that expired in July was a lifeline. Without it, she has been strapped.

“I'm struggling and I'm a single mom; my husband died 12 years ago,” she said. “So, you know, it's like, I don't know, it's scary as hell--I don't want this to start affecting my credit.”

Martindale said that a troubling concern about people leaning on credit is that their credit reports can be used for non-credit granting purposes, like rental applications, insurance pricing and even employment applications. 

“One good thing about California is that we have largely restricted the use of credit history for employment purposes,” she said.

She recommended that people struggling with finances ask for payment plans or relief from mortgage companies, loan servicers and credit card companies. While there isn’t a state-wide eviction moratorium, many Bay Area counties and cities, including Alameda County and San Francisco have extended moratoria. 

“Unfortunately, unless and until we have another stimulus package come from Congress, maybe more stimulus checks, a lot of people may be leaning on credit, and that is very unfortunate,” Martindale said.

Caroline Hart is a writer and producer at KTVU. She covers unemployment, inequality, food issues, breaking news, and much more. She can be reached at caroline.hart@foxtv.com.

Resources: 

Check your credit score weekly: https://www.annualcreditreport.com/index.action 

Find a food bank near you: https://www.feedingamerica.org/find-your-local-foodbank