Americans Paid Off $108 Billion in Credit Card Debt Last Year -- The Most Ever

by Christy Bieber | Updated July 21, 2021 - First published on March 10, 2021

Many or all of the products here are from our partners that pay us a commission. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.
A happy couple laughing and cooking together in their kitchen.

Image source: Getty Images

Finally, some good news about 2020 -- Americans paid down a record amount of credit card debt.

In 2020, Americans paid off a lot of credit card debt. In fact, according to data from the New York Federal Reserve, the total outstanding credit card balance fell a whopping $108 billion from the end of 2019.

This is the largest annual decline in total collective credit card debt since the Federal Reserve began recording this data point in 1999.

The Fed's data shows that Americans, by and large, have been reducing their balances rather than taking on new credit. In fact, the number of people applying for new credit cards has declined since the second quarter of 2020 when the COVID-19 pandemic began in earnest in the U.S.

There has been plenty of bad news this past year. But the fact Americans are making great progress in repaying credit cards is one bright spot.

Here's what you need to know about the big decline in outstanding credit card debt

The Federal Reserve has a simple explanation for why Americans have been so successful in paying off their credit cards in 2020: There simply wasn't much to spend money on.

The sharp reduction in card balances began in the second quarter when the total fell by $76 billion. It continued into the third quarter when outstanding card balances decreased by $10 billion. There was a small seasonal adjustment upward in the fourth quarter, but the Federal Reserve reports people are still not spending much.

But the decline in consumer spending caused by the COVID-19 pandemic is just one part of the picture. The Federal Reserve also suggests many Americans have shifted their focus to debt paydown.

This, too, makes a lot of sense. After all, when faced with the economic uncertainty of a pandemic, it's natural to prepare for a possible income loss or unexpected expenses. Paying down credit card debt is one of the best ways to do that, since you can get rid of a monthly obligation and save on interest charges if you bring your card balances down to $0.

Americans can continue this positive trend

2020 was an unprecedented year and it's one that most of us wouldn't want to repeat. The reason many people were able to pay down debt was that they couldn't travel or eat out due to COVID-19. But most of us will want to return to our normal lives and resume these activities once it's safe to do so. However, that doesn't mean you can't continue to improve your finances.

If you managed to pay off all your debt during the pandemic year, your financial situation should already be a lot better going forward. After all, you won't owe more interest on loans or have any monthly payments to worry about. The money you were spending on debt pre-pandemic can be reallocated toward other goals, such as building an emergency fund or saving for retirement.

If you haven't yet paid your high-interest debt off in full, it may be worth continuing to forgo expensive trips or restaurant meals until your balance hits $0. After all, the habit has been broken now. Sacrificing for a little longer may be worth doing to become debt free.

Spend in moderation

If your spending habits changed during the pandemic, you might decide to re-introduce splurges in moderation. You don't have to spend at pre-pandemic levels. After all, if you haven't been able to dine out at all, it will already feel like a treat to eat out once or twice a month instead of every week.

If you can avoid resuming all the spending you were doing before COVID-19, you can continue to use the cash that's been freed up by your changed habits wisely. This may be one of the few silver linings of a difficult and depressing year, so it's worth seriously considering.

Top credit card wipes out interest until 2023

If you have credit card debt, transferring it to this top balance transfer card secures you a 0% intro APR into 2023! Plus, you'll pay no annual fee. Those are just a few reasons why our experts rate this card as a top pick to help get control of your debt. Read our full review for free and apply in just 2 minutes.

About the Author