Debt struggles hit consumers at all income levels — here’s why

As credit card debt ticks higher, there are more signs that consumers — even those with higher incomes — are struggling to manage their balances.

Credit card debt hit $1.21 trillion in the second quarter, in line with last year’s all-time high, according to the Federal Reserve Bank of New York. The total is up 2.3% from the previous quarter.

While lower-income Americans are most likely to struggle with the higher costs of everyday items, a new set of surveys from the National Foundation for Credit Counseling found that over the past six months, debt issues have been affecting a growing number of Americans across all income levels.

“It really doesn’t matter on the income level,” said Mike Croxson, CEO of the NFCC, an organization of non-profit credit counseling agencies. “It’s really about the debt level. Because when you reach the tipping point that the interest expense exceeds what you can afford to pay, that’s what gets the consumer into trouble.”

The NFCC survey of 2,010 U.S. adults aged 18 and older, conducted by Harris Poll, was released in April, then updated after a follow-up survey of 2,089 individuals in early August.

There are several signs that consumers’ debt struggles are getting worse.

While the percentages are relatively small, the latest NFCC survey shows the share of individuals who made a credit card payment in the last six months that was less than the required minimum rose to 13% in August, up from 8% in the spring.

There was a similarly small increase in those who transferred debt from one card to another. The share of borrowers who consolidated credit card debt into a personal loan doubled, from 4% in the April survey to 8% in the August survey.

The share of those who engaged in these “negative debt behaviors” in the past six months was generally the same across income levels, from those earning less than $50,000 a year to those with annual incomes over $100,000, said Kathy Steinberg, a vice president at Harris Poll.

“While higher-earning households are less likely than lower-income to be more worried about their finances than they were six months ago, there’s still concern,” Steinberg said. 

Compared to six months ago, 30% of high-income consumers in the survey are now more concerned about having enough money to cover unexpected expenses, and 20% are now more worried about making timely debt payments, she said. 

Other data show that borrowers are increasingly falling behind on their payments, including those who are more than 90 days late. The July CreditGauge report by the credit scoring company VantageScore shows that late-stage credit delinquencies increased year-over-year across all credit tiers, including among the most credit-worthy borrowers.

“There are a number of things that are driving that,” said VantageScore CEO Silvio Tavares. “The employment environment that’s worsening, and we’re seeing that in late payments. But the reality is another trend, that’s been going on for some time, is inflation and sustained high interest rates. Those are the other key drivers of that change.” 

Meanwhile, the Federal Reserve’s Senior Loan Officer Opinion Survey from July found lenders have been tightening standards on credit card loans in the past several months.

Rising delinquencies and economic uncertainty are impacting lenders’ decisions, Tavares said.

He also noted that consumer demand for mortgages and car loans has fallen in recent months.

“Consumers who take out mortgage loans and auto loans tend to be higher income, more affluent. Obviously, those are big purchases, and we’re seeing them really throttle back their demand for those,” said Tavares.

Payments may be out of reach, even for higher-income consumers, he said.

Around 17% of people buying or leasing a new vehicle have an auto loan payment of more than $1,000 a month, according to a new Experian report. The average monthly payment for a new auto loan is $749, close to the all-time high. 

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