By the end of Q1 2025 American household debt expansively grew to an overwhelming $18.2 trillion dollars. This historic increase serves as a reminder of the escalating economic burden more families are facing. Indeed, consumers are reaching dangerous levels of debt. A jaw dropping $1.3 trillion in revolving credit, much of it from credit card debt, illustrates this economic distress. This trend is troubling given the importance of consumer spending—the primary engine of the U.S. economy—to continued economic growth.
This is a sharp departure from May, when consumer debt increased at a slow 1.2 percent pace, a $5.1 billion increase. While this figure might appear small on the surface, it is indicative of deep obstacles for consumers. Now they can barely make ends meet as interest rates and the cost of living skyrockets. Outside of student debt and auto debt, non-revolving credit had a massive spike. It increased by $8.6 billion, or 2.8 percent, largely boosted by record auto loans, student loans, and other purchases. This dramatic change in the market reflects that many consumers are reducing expenses that aren’t essential. At the same time, many others still have to finance their big-ticket purchases.
The average annual percentage rate (APR) for credit is 20.13 percent. In fact, some lenders go even higher, as high as 28 percent. With the added burden of high-interest rates, consumers are facing unprecedented stress. This is particularly applicable for borrowers who are already struggling to make their payments. Now 4.3 percent of total outstanding American household debt is delinquent. This statistic is a sobering reminder of just how deep many Americans’ financial woes run.
Serious delinquencies have thus far increased to 2.8 percent of all American debt. If the shortfall figure holds, that would be a jaw-dropping 52 percent increase from last year. Subprime American credit card borrowers are experiencing this pressure particularly intensely, with delinquency rates soaring by over 5.6 percent. That’s because this demographic is currently facing a delinquency rate of almost three times the 11.7 percent delinquency rate the same demographic had pre-pandemic.
Americans are already swiping their credit cards as the holiday shopping season kicks off. This shopping spree could be little more than a last hurrah for consumers who have blown through their pandemic savings. Spending on credit cards is beginning to decrease. This rapid decline indicates that the average American might be reaching their borrowing thresholds and struggling to balance their existing debts.
Moreover, rising mid-to-late-stage credit delinquencies are very worrisome. At the same time, rising credit card balances are a sign that American consumers are tapping across the country to arrange their accelerating debt burden.
“The combination of rising mid-to-late-stage credit delinquencies and rising credit balances suggests a growing debt burden that some consumers are increasingly struggling to manage.” – Financial Analyst
The sobering aspects of the nasty side has started to focus more on the real economic consequences. The increase from $4.15 trillion in 2020 to more than $5 trillion today shows that this path is unsustainable for millions of families. As discussed, financial stress builds, consumers will start to spend less, contributing a downward spiral of consumer doom for the broader economy.