Tissue degradation plays a crucial role in vascular diseases such as atherosclerosis and aneurysms. Computational modeling of vascular hemodynamics incorporating both arterial wall mechanics and tissue degradation has been a challenging task. In this study, we propose a novel finite element method-based approach to model the microscopic degradation of arterial walls and its interaction with blood flow. The model is applied to study the combined effects of pulsatile flow and tissue degradation on the deformation and intra-aneurysm hemodynamics. Our computational analysis reveals that tissue degradation leads to a weakening of the aneurysmal wall, which manifests itself in a larger deformation and a smaller von Mises stress. Moreover, simulation results for different heart rates, blood pressures and aneurysm geometries indicate consistently that, upon tissue degradation, wall shear stress increases near the flow-impingement region and decreases away from it. These findings are discussed in the context of recent reports regarding the role of both high and low wall shear stress for the progression and rupture of aneurysms.