There seems to be a domino effect happening in the financial world, from state and local closures, to job loss, and as a result, a growing amount of consumer debt, bankruptcies and mortgage defaults.
The wave of bankruptcies, especially those in the retail sector, keep coming. Just this week, Lucky Brand added to the list that includes Neiman Marcus, J.Crew and many others filing for bankruptcies as a result of sales dips due to COVID-19. Even if stores reopen, the months of lost revenue, when combined with a high unemployment rate, makes the future look grim for some of these companies, all of whom are deep in the hole of debt.
CreditCards.com released a study showing the results of COVID-19 on our nations credit card debt. Nearly half (47%) of U.S. adults, or about 120 million people, currently have credit card debt, up from 43% in early March. Additionally, 23% of credit card debtors, or about 28 million U.S. adults, have added to their credit card debt as a direct result of the COVID-19 outbreak. With the average American living paycheck to paycheck, and unemployment hovering in the double digits, more and more people have relied on credit cards for everyday expenses and bills that they are struggling to cover.
Mortgage default could be on the horizon for some Americans, as we wrote about back in April. It was reported in May that mortgage delinquencies surged by 1.6 million in April, the largest single-month jump in history. Then, in May, another 723,000 homeowners became past due on their mortgages in May, pushing the delinquency rate to 7.76%. With more workers who were furloughed being rehired in June, it is predicted that the steep rise will level off.
While we don’t know how long these financial difficulties will last, or if they will increase if unemployment grows again, we are monitoring the situation closely as we prepare our financial databases for the second half of the year.