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Household debt rises as financial impact of coronavirus begins to emerge

Household debt rises as financial impact of coronavirus begins to emerge
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The amount of debt held by Americans increased by almost 4% in the first quarter of the year, as evidence over how the coronavirus pandemic has affected household finances begins to emerge. 

According to the latest Federal Reserve data (opens in new tab), households across the U.S. fell 3.9% deeper into the red in the three months to the end of March. However, with the survey only covering the early stages of the COVID-19 outbreak, the fear is that the situation will end up a lot worse for many Americans, pushing rising numbers towards the services of the best debt consolidation companies (opens in new tab)

Around 44 million U.S. jobless claims (opens in new tab) have been made over the last 12 weeks, meaning more than one in four American workers have lost their job since the end of the first quarter, a period not covered by the Federal Reserve research. Broadly in line with the unemployment figures, a new survey (opens in new tab) by reports that just over a quarter (26%) of Americans think their personal finances have suffered since COVID-19 struck. 

Household debt rises as financial impact of coronavirus begins to emerge

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However, given the scale of the economic turmoil that has prevailed, this figure is lower than might have been expected. Indeed, more than half (53%) felt their financial circumstances were about the same as before the pandemic, while 12% actually said their finances had improved. 

Managing your finances in uncertain times

Much of this apparent resilience can be credited to federal government and financial providers who have acted decisively to try and help consumers. The rollout of the coronavirus stimulus check (opens in new tab) will have helped allay some of the immediate financial pain, as will the assistance that has been offered by credit card issuers (opens in new tab). Mortgage lenders have also been affording leeway to homeowners (opens in new tab) struggling to meet their monthly payments.  

However, obviously, consumers have had to quickly adapt too, with many altering spending habits (opens in new tab) in response to new financial constraints and making cutbacks wherever they can. Credit card borrowing has plummeted (opens in new tab) at the same time, as households look to avoid taking on more debt if they can, while the personal savings rate has soared (opens in new tab), and emergency funds are being reinforced. 

Household debt rises as financial impact of coronavirus begins to emerge

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“Even with the economy in recession, most Americans indicate that their personal finances haven’t been adversely affected since the pandemic began,” says Mark Hamrick, Bankrate senior economic analyst. “Even so, the high degree of prevailing uncertainty dictates the need to focus on saving for an emergency while paying down debt.”

Inevitably, debt will remain the major problem for many, and coping with this burden is vital. In terms of mortgages, interest rates are either at or near record lows, paving the way to save thousands of dollars (opens in new tab) in monthly payments if you can secure a new deal with one of the best refinance mortgage companies (opens in new tab)

For those with high-cost credit card debt, a balance transfer card is one option to try and better manage credit card debt (opens in new tab). However, for some, the option offered by debt consolidation companies (opens in new tab) to bring together debts into what will hopefully be one lower and more manageable payment will be the best course of action to take. 

With over 20 years’ experience in the financial services industry, Tim has spent most of his career working for a financial data firm, where he was Online Editor of the consumer-facing Moneyfacts site, and regularly penned articles for the financial advice publication Investment Life and Pensions Moneyfacts. As a result, he has an excellent knowledge of almost areas of personal finance and, in particular, the retirement, investment, protection, mortgage and savings sectors.