WASHINGTON (TNND) — Stress on household finances continues to pile up as Americans take on record levels of debt to keep up with the cost of living and low-income earners struggle to stay afloat on their loans and day-to-day spending.
Evan as the economy continues to perform well overall, a growing share of consumers are facing challenges with budgets being pushed to the brink after five years of elevated inflation and a stalling labor market that has slowed wage increases. Americans are carrying record levels of debt and showing signs of stress in paying it back, particularly on the lower end of the income spectrum.
Strains on household finances pose potential trouble for the overall economy that is primarily driven by consumer spending. Americans have mostly maintained their spending levels despite consistent inflation and economic headwinds over the last several years, a trend that could be threatened by climbing debt and concerns about the labor market.
Overall debt balances climbed by 1% from the third quarter to a total of $18.8 trillion, according to a new report by the Federal Reserve Bank of New York. The average household owed a total of $155,594 at the end of 2025, nearly $12,000 below the all-time high.
Credit card debt soared to a new high at the end of 2025, leaving Americans in more debt than ever before. Balances rose by $44 billion to a total of $1.28 trillion, a 5.5% jump compared to a year earlier.
Evidence of stress on budgets has been mounting with more Americans saying they have to rely on credit to cover necessities. Inflation has cooled from the highs of the post-pandemic economy, but prices are 25% higher than they were five years ago with larger grocery totals and more expensive utility bills.
“America more or less runs on credit, but where a lot of households found themselves in this predicament was because post-COVID when we’re looking at 9% inflation, wages were not keeping up with the rate of inflation, so more and more consumers were forced to rely on their credit cards,” said Chip Lupo, a WalletHub analyst. “Those balances and the interest on top of it, that’s just creating additional burden on top of the cost of living.”
Nearly half of Americans in a new WalletHub survey said their household can’t manage more debt, while more than one-third said they expect to have higher balances by the end of 2026. Fifty-three percent of households said the struggle the most with credit card debt, followed by mortgages at 20% and student loans with 11%.
Out of the 175 million people in the U.S. who have credit cards, around 60% carry a balance from one month to the next. With average credit card rates around 20%, it is one of the most expensive ways for consumers to borrow money.
As Americans are accumulating more debt, there are also signs more people are struggling to pay it back.
Delinquency rates on all outstanding household debt climbed to 4.8% during the fourth quarter, the highest rate since 2017, according to the New York Fed report. The increase was driven by low-income and younger borrowers who are most vulnerable to rising prices and slowing wage gains.
The level of card loans that were at least 90 days delinquent climbed to 12.7%, the highest share since the start of 2011. Auto loans in serious delinquency hit 5.2%, nearing a record set in 2010.
The overall share of loans in default is near pre-pandemic norms, but the struggle for low earners is another example of the “K-shaped economy” where high earners bolstered by investment gains and home equity have been able to absorb higher costs and continue spending, while new workers and lower-income households are turning to credit or cutting back on spending.
A survey released Monday by Achieve said 55% consumers are carrying credit balances to cover essential expenses. As the expenses pile up, many are cutting back spending on basic needs, going further into debt, or tapping into savings to get by.
“This is what the K-shaped economy looks like in the real world. There’s an affluent half of the population whose financial lives aren’t disrupted by momentary inconveniences. But for everyone else, financial triage and tradeoffs are a way of life,” Andrew Housser, Achieve’s co-founder and co-CEO, said in a statement.
More consumers are having to make hard choices in how they spend their money, cutting back on necessities and finding ways to put off major financial purchases as purchasing power shrinks and wage growth struggles to continue outpacing inflation. Broader cuts to discretionary pose a risk to an economy largely driven by consumer demand.
Early signs of strain have already started to emerge. Retail sales were flat in December that included the end of the holiday shopping season in a potential warning sign for consumers being maxed out. A prolonged pause in growth in retail sales would pose a significant risk to the economy that has been able to weather high inflation and tariff uncertainties.
National Headline
