The Role of Credit Cards for Unemployed Households in the Great Recession

Credit cards and other forms of unsecured debt can be borrowed without underwriting earnings. Forward looking creditworthy households can use unsecured debt during unemployment to support consumption during an earnings shock. This paper uses the Survey of Income and Program Participation (SIPP) data to estimate consumer debt levels of households before, during and after unemployment spells across economic expansions and contractions from 1995 to 2012, including recessionary periods with credit contractions. The data indicate a consistent pattern of households increasing use of unsecured credit as they transition into unemployment, and continue to have elevated levels of debt in the future. These effects are larger for the households in the lower half of the wealth distribution, and appear larger overall for the 2009 recession compared to prior periods.