In 2023, a notable shift occurred as 6% of Americans turned to payday loans, marking a 1% increase from the previous year. This statistic underscores the growing financial strain on many individuals, despite the fact that 82% of all US adults possess at least one credit card. Each consumer, on average, carries about four credit cards and collectively, American households face over $21,000 in credit card debt. As of the third quarter of 2024, US credit card debt soared to a record $1.17 trillion. This financial burden is further exacerbated by an average credit card interest rate of 28.6%, which has led many to make only minimum payments, with this behavior rising to 10.75% among cardholders.
The financial landscape is particularly challenging for those with annual incomes between $50,000 and $99,999, as 46% carry a credit card balance. Low-income Americans feel the pinch more acutely, often resorting to alternative financial services like buy now, pay later schemes, payday loans, or pawn shop loans. The stark reality is highlighted by the fact that 23% of individuals earning less than $25,000 annually are unbanked.
“It’s a constant weight in the back of my mind which clouds all my little joys,” said Angela, reflecting the pervasive distress caused by mounting debts.
The revolving debt situation has intensified, with money owed rising by 52.5% to $645 billion since 2021. The average credit card debt per household now exceeds $21,000, prompting a legislative response. A new bill aims to cap credit card interest rates at 10% for the next five years, offering potential relief for those overwhelmed by high rates.
Angela's story is not unique. She describes the challenges faced by many as inflation and the rising cost of living make it increasingly difficult to manage debt.
“With inflation, cost of living rising, and life, I have struggled to pay down the debt. We do less, stress about what we can spend on or can afford,” Angela shared.
In Ohio, a 54-year-old woman faces similar struggles, compounded by unemployment and age discrimination.
“I’m now unable to pay them, and I can’t find a job due to a tight market and most likely age discrimination,” she lamented.
“My debt has escalated to the equivalent of half my typical annual income. This and the inability to find a job have left me with no choice but to remain in a very unhappy, toxic, romantic relationship,” she added.
The burden of debt often compounds due to unexpected expenses, such as medical bills.
“The medicines, procedures, and travel all hit us hard,” Angela noted.
Angela also described the snowball effect that can occur when debts are not managed effectively.
“It just piles up and it piles up and you have to miss a payment because something else in life happens, and or you don’t make the payment you want to make, and it just starts to kind of snowball on you,” she explained.
For others like David, involvement with payday lenders has proven unforgiving.
“They report every late payment, every non-payment to the collection agencies, and I got into a merry-go-round, in over my head, and it wrecked my credit score,” he recounted.
“There’s no negotiating, settling, or anything like that with payday lenders,” David warned.
In Connecticut, a 53-year-old man battles with his debt situation by drawing from his retirement funds.
“Money is always an issue with me, I’m currently keeping my debt at bay with loans out of what little I have for retirement but still losing about half my monthly income to debt repayment that I wish I could be saving for a home,” he disclosed.
The rise in payday loan usage by 1% from 2022 to 2023 further highlights the precarious financial position many Americans find themselves in. With payday loans averaging an astronomical annual interest rate of 400%, they offer little relief to those struggling financially.