American households are sinking deeper into debt, with total consumer liabilities reaching record levels amid rising living costs, stagnant wages, and the return of student loan payments. Recent data shows U.S. consumer debt has ballooned to more than $18.2 trillion in early 2025—an increase of nearly $4 trillion since 2020.
Credit card debt has grown at an alarming pace. In 2021, balances hovered around $770 billion. Today, that figure exceeds $1.17 trillion, marking a more than 50% increase in just four years. Experts say this spike reflects growing reliance on high-cost, short-term borrowing to manage everyday expenses like groceries, gas, and rent.
Economists say the surge in credit card debt is a red flag and a sign that many families are increasingly depending on credit to bridge the gap between income and rising costs.
Delinquencies are also climbing, particularly among low-income borrowers. In zip codes with the lowest income levels, missed credit card payments have jumped by more than 60% since mid-2021, indicating that repayment capacity is weakening.
According to the Federal Reserve Bank of St. Louis, the percentage of people who are delinquent on credit card debt measures the incidence of financial distress among U.S. households, and it is important for understanding how macro shocks affect the economy. In addition, delinquency rates, including credit card delinquency rates, may anticipate recessions and provide insight into future U.S. economic conditions.
While mortgage and auto loan debt have continued to rise modestly, unsecured debt—like credit cards and "buy now, pay later" (BNPL) installment plans—is growing fastest. Federal Reserve data shows that revolving credit (which includes credit cards) is increasing at an annual rate of 7%, outpacing non-revolving credit (like car and student loans), which is growing at just 3.3%.
At the same time, some relief has come from student debt. The total balance of outstanding student loans dropped nearly 17% in the past year, largely due to forgiveness programs and the repayment pause that lasted until late 2023. However, now that monthly payments have resumed, many borrowers face renewed strain on their budgets.
The broader picture is one of mounting financial pressure, especially for working-class families. As wages struggle to keep up with inflation, and social programs like SNAP face cuts, more households are relying on high-interest credit to stay afloat—pushing personal debt to unsustainable levels.
A growing number of working-class Americans are finding themselves trapped under a mountain of debt and are falling behind on small-dollar loans, payday advances, and BNPL payment plans.
BNPL services have exploded in popularity across the U.S., offering consumers the ability to split purchases—often essentials like groceries or clothing—into four interest-free installments. Marketed as a flexible alternative to credit cards, BNPL has become a go-to payment method for millions. But behind the convenience lies a regulatory blind spot: BNPL isn’t classified as a traditional loan, and as a result, it doesn’t fall under the same federal lending protections that apply to credit cards and personal loans.
That legal gray area has big implications for consumers.
BNPL providers like Klarna, Afterpay, and Affirm don’t have to comply with the Truth in Lending Act (TILA), a cornerstone of consumer finance law passed in 1968. TILA requires lenders to clearly disclose interest rates, fees, and repayment terms. But because BNPL providers argue they’re not offering credit in the traditional sense—since payments are split and often carry no interest—they aren’t bound by the same transparency rules.
This means BNPL users might not fully understand the risks involved. While the concept sounds harmless—paying $25 every two weeks for a $100 purchase—missed payments can result in hefty late fees, overdraft charges, and negative marks on credit reports. Some providers even reserve the right to send delinquent accounts to collections.
This lack of regulation is especially problematic as BNPL usage rises among financially vulnerable Americans. A growing number of people are using BNPL to pay for groceries, medical expenses, and utility bills—necessities typically not financed through credit. Unlike traditional lenders, BNPL companies don’t perform hard credit checks or assess a borrower’s ability to repay, increasing the risk of overextension.
As delinquencies rise and regulators take notice, the Consumer Financial Protection Bureau (CFPB) has started investigating the sector. A 2022 report from the CFPB called for greater oversight, warning that BNPL providers collect massive amounts of consumer data, offer minimal dispute resolution rights, and lack uniform standards for disclosures.
Until regulators catch up, BNPL remains a powerful—but risky—tool in the modern consumer economy. For now, it's up to borrowers to tread carefully in a marketplace where what looks like a helpful payment plan might turn into invisible debt.
There is evidence that there is now a growing number of defaults on BNPL services, especially among younger and lower-income consumers. Late fees, overdraft penalties, and ballooning credit card balances are becoming common side effects of this financial strain. Payday lenders and small-loan companies, which target the working poor, report higher rates of missed payments and rollovers, further trapping borrowers in cycles of debt.
This growing reliance on high-cost credit is a red flag. It signals not just personal financial hardship, but systemic economic fragility. Inflation continues to chip away at purchasing power. Though wage growth has improved in some sectors, it often lags behind price hikes for housing, food, and transportation. Meanwhile, the resumption of federal student loan payments in late 2023 has added monthly stress for millions. And cuts to programs like SNAP—the Supplemental Nutrition Assistance Program—mean many families have less public support to fall back on.
All of this is converging into a dangerous feedback loop. As household budgets buckle, people turn to predatory loans to fill the gap. When they fall behind, the consequences—fees, damaged credit, restricted access to affordable loans—make recovery even harder. And as federal support programs shrink, the safety net becomes less effective at cushioning these shocks.
Guest:
Julie Margetta Morgan is president of The Century Foundation. A policy expert and seasoned leader in both the government and nonprofit sectors, she most recently served as the associate director of research, monitoring and regulations at the Consumer Financial Protection Bureau (CFPB), overseeing the division responsible for setting and advancing the agency’s policy agenda. Prior to that role, Julie established the CFPB’s Office of Policy Planning and Strategy, where she coordinated the agency’s policy agenda across its major divisions and served as a senior advisor to CFPB Director Rohit Chopra. Under Julie’s leadership, the CFPB took major steps to curb medical debt, reduce costly junk fees, and promote a fair and competitive financial marketplace.
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This discussion will be recorded on Tuesday, June 17, 2025.
