Glut of holiday shopping could benefit credit unions in 2021

2020 is almost behind us.

Soon the calendar will flip to 2021, a change nearly everyone will welcome.

Yet even with a new year, all that was absolutely dreadful about 2020 will linger for quite some time and impact a host of decisions for the foreseeable future.

Financial institutions — and credit unions in particular — will be in a position in the months ahead to make lending decisions that impact the lives of millions of Americans, for better or worse.

What will the areas of focus be in 2021? Will lingering troubles from 2020 require greater risk mitigation in 2021? Or will those same troubles open up new avenues for growth?

A new report from LendEDU, a financial services company, finds many Americans are taking on record levels of credit card debt as a result of expensive holiday shopping coinciding with the coronavirus pandemic and recession.

That finding and other data from the report can help credit unions make decisions for 2021.

According to the LendEDU study, which surveyed 1,000 adult Americans, 67% of consumers are reducing their holiday shopping budgets this year as a result of the pandemic and its economic impact. This includes 86% of those Americans who were laid off due to the outbreak and are still out of work.

This is not a surprise. Many of those who have seen their hours reduced or their jobs completely eliminated have battled an economic crisis for nearly an entire year. They have struggled to keep up with expenses and have seen their emergency savings wiped clean.

And with a costly holiday shopping upon us, we are seeing the ramifications of those crippled banking accounts. Consumers are being left with no choice but to finance their holiday shopping by taking on more credit card debt.

LendEDU found 33% of respondents are incurring credit card debt to cover holiday purchases, including 51% of those who are still out of work.

Among those taking on credit card debt, 63% said their debt levels will hit a new record by the time all is said and done, including 75% of poll participants who are still unemployed because of the pandemic and recession.

In fact, 24% told LendEDU they are taking out a new credit card just to finance purchases from holiday shopping, while 68% are adding to their existing balances. Many of those taking on additional debt said they were adding to debt accumulated earlier in the pandemic.

Ultimately, 55% of Americans are losing sleep over the credit card debt balances they have amassed due to both holiday shopping and the pandemic. This includes 72% of those who are still without a job.

Looking to 2021

What can credit unions take from this information to inform their decision making in 2021?

In the coming year, credit unions should place an emphasis on balance-transfer offers for their credit cards. Many Americans are heading into 2021 with inflated credit card balances. A year of battling a pandemic and recession and then capping it off with expensive holiday shopping tends to have that effect.

As a result, consumers may be looking to pay down or eliminate their credit card balances. One way to do that is through a balance transfer credit card, which frequently offer a 0% introductory APR on balance transfers.

Because many consumers will want to get started paying down their credit card debt as quickly as possible, credit unions might find some success in promoting balance-transfer offers early in the year. Those products provide a way for consumers to quickly save a lot of money in interest and on their monthly payments.

But credit cards aren’t the only growth avenue for the industry in the year ahead.

For example, with many Americans lacking adequate cash or savings as a result of the events of 2020, they will be looking for new ways to finance their expenses. Credit unions could see increased interest in new credit cards or even personal loans, both of which may temporarily help a consumer cover costs without adding to their credit card debt.

All this being said, credit unions must also head into 2021 with an understanding of how financially fragile everything has become as a result of the coronavirus and its aftermath. They may see increased interest for credit card or personal loan products, and it may be tempting to do a lot of lending.

However, lending decisions must be made with the understanding that many Americans are not in great financial shape right now and may not be secure in their ability to make monthly payments on any type of loan or line of credit.

Going overboard in the year ahead could put credit unions in a position where too many members can’t repay their obligations, which will have a crippling effect on the bottom line. Additionally, credit unions must also keep the best interests of the consumer in mind when making underwriting decisions, since leaving a consumer with more debt than they can handle is not encouraged.

Businesses and everyday people alike are excited about 2021, but it’s imperative to enter the new year without forgetting the lessons of the past 12 months and how an unprecedented year will still have sway over its successor.