Transcription
Have you noticed something lately? Even the mainstream media here in the United States now openly admits the United States economy is not booming. In fact, far from it.
A recently published article in the Wall Street Journal caught my eye. And I would like to go ahead and focus on the issue deeper. The article is titled Americans are falling behind on their $1.25 trillion credit card bill.
There is a growing disconnect in the United States today. On one hand, official economic statistics continue to suggest resilience. Based on the official narrative, unemployment remains relatively low. Consumer spending has not even collapsed and the stock market continues to attract investment and everything is is great. But beneath that surface, a very different story is emerging. one that is not told through GDP figures or through stock indexes, but through credit cards, overdue bills, and households increasingly struggling to make ends meet. And that is not an overstatement.
The latest data from the Federal Reserve Bank of New York paints a troubling picture. Americans now carry a record $1.25 trillion in credit card debt. This is the highest level ever recorded. Now, at the same time, and this is the troubling part, credit card delinquencies have reached a 15-year high. 13% of all credit card accounts are now at least 90 days overdue. Again, this is the worst level since the aftermath of the 2008 financial crisis.
These numbers reveal something important about the state of the American economy. Consumers are not simply spending because they they are confident about the future. Increasingly, they appear to be spending because they have no choice and they're not spending their savings. They're putting everything on their credit cards. For millions of households, credit cards have become less of a convenience and more of a survival tool.
The reason is, of course, very straightforward. The cost of living has risen dramatically over the past several years. Food now costs uh remain elevated and housing expenses continue to squeeze family budgets. Health care costs show little sign of relief. As I'm sure many of you know, utility bills, insurance premiums, and transportation expenses have all moved higher and higher. For many Americans, wages have simply failed to keep pace with the cumulative impact of these increases.
When food, housing, and health care consume a growing share of your household income, there is less money that is available to pay off existing debt. So, families are forced into very difficult choices. They cannot stop paying rent. They cannot ignore their mortgage. Of course, they need electricity. They need transportation and groceries. And as a result, credit card payments often become the first obligation to be delayed.
So this dynamic helps explain why delinquency rates are rising across virtually every income group. The problem is no longer confined to lowincome households. Data shows that residents of lower, middle, and higher income communities have all experienced increasing rates of overdue credit card payments over the past several years.
Even more revealing is the size of the balances that Americans are carrying on their credit cards. The average card holder now holds roughly $6,500 to $6,700 in credit card debt. Meanwhile, the share of Americans carrying balances above $10,000 has risen substantially across all income brackets.
What makes this situation especially dangerous is the cost of borrowing itself. Average credit card interest rates have surged to approximately 21% which is up dramatically from around 14 to 15% just a couple of years ago. At those rates, debt becomes increasingly difficult to escape. A family that is carrying a large balance may find that a significant portion of every monthly payment simply goes toward interest charges rather than reducing the principal balance. So what begins as temporary borrowing can quickly become a long-term financial trap.
This is one reason why credit card counseling agencies are now reporting unprecedented demand. The National Foundation for Credit Counseling says it served 24% more clients this January than during the same period a year earlier. Compared with 2018, its average monthly client volume has increased by roughly 60%. More Americans are seeking help because more Americans are discovering that their debt burden is becoming unmanageable. they cannot pay it off and they cannot sustain the same level of expenses on a monthly basis.
Yet, of course, credit cards tell only part of the story. An equally revealing trend has emerged in the explosive growth of so-called buy now pay later financing. Initially marketed as a convenient alternative to traditional credit cards, buy now pay later services allow consumers to divide purchases into smaller installment payments. And so these programs become popular for discretionary purchases such as uh clothing, travel, electronics, and today Americans are increasingly using them for necessities.
According to a recent Lending Tree survey, nearly onethird of buy now pay later users have used those loans to purchase groceries. Among Generation Z consumers, the figure rises to nearly 4 in 10. That statistic alone should raise concerns. When households begin financing groceries, one of the most basic recurring expenses, it suggests that disposable income has become increasingly strained.
The survey uncovered even more troubling findings. More than half of all buy now pay later users said that they would struggle to make ends meet without access to these loans. Among households with children, the figure rises to more than 60%. In other words, what was originally designed as a flexible payment option to purchase high ticket item has become a substitute for income used to purchase groceries.
And even more alarming is the growing number of users who are falling behind on these payments. Nearly half of all buy now pay later borrowers reported making at least one late payment during the past year. That number has risen sharply from just a few years ago. By the way, the trend suggests that many households are not merely using these services for convenience. They are actually relying on them because they lack sufficient cash flow to cover everyday expenses.
Some consumers have even begun using buy now pay later financing to cover rent payments, medical expenses, dental bills, and vet costs. And these of course are not luxury purchases. These are essential obligations. And when financing tools originally designed for consumer goods become necessary for basic living expenses, it often signals deeper financial stress, deeper economic stress within the broader economy.
This really creates an interesting contrast with the political conversation that is currently taking place in Washington. President Trump has largely downplayed concerns regarding household financial stress and increasing inflation. When asked whether economic pressures on American families influenced efforts to end the Iran war, he responded that such concerns played quote not even a little bit of a role.
Debt is a lagging indicator of economic stress. Households typically exhaust savings before accumulating large balances on their credit cards and so they borrow before they default and they default only after financial pressure has persisted for an extended period of time. The American consumer has long been the engine of the US economy. Consumer spending accounts for roughly 2/3 of economic activity. But if a growing share of that spending is being financed through debt rather than through income, the foundation becomes increasingly fragile. The question now is how much longer American consumers can continue borrowing before the pressure becomes impossible to ignore and the foundation cracks.
Thanks so much for watching. I would love to hear from you in the comments below your thoughts on the issue. Let us know what you're seeing in the city and the state where you're located. We would love to hear from you. Thank you so much for watching. Thank you for being here. Remember to become a subscriber on Substack and Patreon for more content. I would love to see you there. Enjoy the rest of your day and I'll see you here tomorrow. Take care.