If there's one thing that all Americans can agree on, it's that 2020 has been a year for the record books — and it's not over yet. The COVID-19 pandemic has wreaked havoc on a lot of aspects of peoples' lives, but most especially when it comes to debt. Millions of people were laid off, businesses shut their doors and money stopped flowing. All of this had a ripple effect on the economy, but also on peoples' financial health. More found themselves drowning in debt, as a necessary means to survive the pandemic, and the subsequent measures taken to squash it.
As of October 2020, there are still 12.6 million Americans unemployed. The majority of this number is likely a result of the pandemic as many businesses are still shut down, or operating at a restricted capacity, awaiting permission from their local governments to return to work. The hospitality business has suffered immensely with airlines, hotels, restaurants furloughing employees left and right.
With so many people out of work, it's only natural that the debt figure is staggering. Consumer debt in the United States currently sits at just over $14 trillion! It stands to reason that this has only increased over the last several months as people struggle to pay bills and stay afloat with little to no money coming in.
Congress has taken some measures to help folks in debt, though, and most credit card companies are being as compassionate as they can in regards to delaying or arranging for alternative payment plans. However, this protection won't last long, and the balances will come due eventually.
Faced With Losing Homes
Mortgage companies have their hands full trying to make arrangements with homeowners who've lost their jobs or been furloughed. In many states, unemployment doesn't offer enough to sustain peoples' lifestyles prior to the pandemic. The CARES Act, passed by Congress and signed into law on March 27th, offered a 13-week extension on state benefits, plus an additional $600 per week payment that helped many weather the storm. Those who didn't qualify, however, were simply out of luck.
Many Americans also face the threat of eviction — even in the midst of a pandemic — due to no fault of their own. After all, you can't pay bills and your rent if the money simply isn't coming in. Some states have taken measures to ensure renters aren't kicked out of their homes, and even the CDC offers assistance with its Eviction Order that helps qualifying tenants keep their homes through December 31.
Congress passed the CARES Act to help citizens and small businesses combat the effects of the lockdowns. It contained a provision known as the Paycheck Protection Program (PPP). Companies who met the criteria could apply for a loan through the Small Business Administration (SBA) to help cover their losses. The money was to be used for paychecks, utilities and other necessary expenses to keep the business afloat. Those who abided by the conditions were eligible for loan forgiveness — a key factor that would keep their debt situation under control.
For many businesses, though, this wasn't — and isn't — enough. The loans have since run out, and with many lockdowns and restrictions still in place, these companies aren't making enough money to sustain themselves. It doesn't help that businesses who shouldn't have qualified received millions of dollars in loans that could've helped those that truly needed it.
Over 80,000 businesses closed permanently as a result of the shutdowns between March and July — an astounding number for a period of only 5 months. Others filed for Chapter 11 bankruptcy, a form of bankruptcy that delays creditor payments while the company looks for a method of reworking its business plan.
As mentioned above, hospitality businesses suffered immensely. This not only includes restaurants and bars — who had the most severe restrictions — but also hotels, as many people stopped traveling, stayed home and hunkered down waiting for the worst to blow over.
Many states started lifting restrictions, albeit slowly, in September, but it might be too late for many of these businesses to weather the storm. They'll need to see a steady uptick in business if they're to have a fighting chance, and with millions still opting to stay home and socially distance, it probably won't happen fast enough.
Increased Debt as a Result of COVID
So, how did the consumer debt increase? Easy — people who lost their paychecks turned to their credit cards and took out loans to try to weather the storm. Instead of buying up the latest technology and holding onto the cards for a rainy day, they're using them to pay for essentials such as food and to keep their utilities on. For those who have larger families, the struggle is even worse.
Food banks have seen an uptick in requests throughout the pandemic, some with people standing in lines for hours just looking for a small handout so they could eat or feed their children.
But what about governmental relief programs? Yes, there was a one-time $1,200 payment to many Americans and a $500 additional payment per qualifying child. But when you consider the cost of living, the cost of food, and the cost to keep your home and utilities, it was a mere drop in the bucket.
To make matters worse, Congress hasn't been able to agree on another stimulus package with arguments between Republicans and Democrats stalling negotiations for months. As of October 2020, there is still no relief for citizens who've lost their jobs and need a way to survive until life resumes.
What does this mean? Simply put, more reliance on credit, if they have it available. If they don't, then there's bound to be some creative solutions.
Returning to Normal? Not so Fast.
At the end of this pandemic, millions are going to be struggling with the weight of the debt they were forced to take on. Even as life returns to normal and people get back to work, they still have to pay everyday bills, and now, on top of it, they'll have the debt they accrued, whether it's a PPP loan that a small business owner has to account for or hefty balances on their credit cards.
Taking on these debts can prove cumbersome, which is why companies like Plymouth Associates step in to help. Most people can typically afford to pay a smaller, once-a-month payment instead of multiple payments with interest constantly accruing. The year 2020 might have wreaked havoc on the finances of millions of Americans, but it doesn't have to be a permanent situation.