Americans now owe a collective $1.2 trillion dollars to credit card companies as credit card use surges with high interest rates.
DENVER — As many families see their budgets shrink, some have started putting essentials like groceries and utilities on credit cards. The trend is causing an increase in credit card use and overwhelming debt.
Thomas Nitzsche is a financial educator at Money Management International, a nonprofit credit counseling agency. He has worked in financial counseling since the Great Recession and shared what he’s seeing as America’s credit card debt crisis reaches record levels.
This story has been edited in a question-and-answer format.
Q: What are you seeing on the front lines of the debt crisis?
A: We’ve seen a steady increase in the number of people seeking financial counseling, especially younger adults, millennials and Gen Z. Average debt loads are now well over $30,000 of unsecured debt. Average living expenses are up 7% year over year.
We’re also seeing average budget deficits of about two to three hundred dollars a month, and because credit cards are a familiar, relatively safe financial tool, people use them as sort of an extension of their income to bridge that gap. But eventually folks run out of runway. They either run out of credit limits or they can no longer make the minimum payments, and that’s usually the point at which they start seeking help.
Q: Why are Americans in this much debt?
A: Credit card debt has been normalized for a very long time. But what’s changed more recently is that the cost of living has gotten so high, especially housing-related expenses, things like gas and transportation. You find yourself stuck in a cycle, only making minimum payments. If you do that, you’ll be stuck in debt for decades. About 40% of the people we work with come to us with both a personal loan and credit card debt, which usually means they tried to consolidate at some point but either didn’t change spending habits or experienced another financial hardship and leaned on the cards again.
Q: Are people putting their basic needs on credit cards?
A: Most of the clients I’ve been speaking with recently are like, ‘I wasn’t doing anything extravagant here; I wasn’t taking great trips or buying extravagant things. It really was just day-to-day necessities.’ We’ve also seen that in the buy-now-pay-later space, where about 30% of buy-now-pay-later transactions right now are for groceries. If you’re starting to put essential expenses on a line of credit that probably won’t be paid off before the next time you need those essentials again, that’s a really concerning sign.
Q: With interest rates above 20%, what does that mean for people carrying this debt?
A: When the average interest rate is in the mid-20s — some accounts are as high as 30% — if you’re just making minimum payments, most of that payment is going towards interest. You’re only paying 1% of the principal plus interest on a minimum payment, which means you’re going to be in a debt cycle almost endlessly. We can work with consumers in debt management plans, which reduces rates more dramatically, usually down to about 7%, to get them out of debt on average within four years.
Q: Debt carries a stigma. What’s the first step someone can take to crawl out of that hole?
A: It’s such an interesting dichotomy that we have so much debt in the US, but we don’t want to talk about it. Studies have shown that people would rather talk about almost anything than debt — politics, vaccines, sexual health, racial issues.
The first step is really just opening up and talking about it. We’ve seen a sevenfold increase in the number of people coming to us from ChatGPT in the last year, which indicates more people are talking to AI about their situation. People are also visiting the debt-free community on Reddit. But beyond that, there are confidential nonprofit agencies like MMI where you can have a free conversation with an expert. Our average counselor’s tenure is 13 years, and one of the things we hear most frequently is, “Am I the worst you’ve ever seen?” We’ve really seen it all.
Q: How does debt impact people’s mental health?
A: People describe it as just being so crushing and emotionally exhausting. ‘I’m juggling these payments, I’m robbing Peter to pay Paul, I’ve had to take a third job and now I’m not seeing my kids.’ Finances and mental health are very closely related. When people reach their debt-free date, it really is such a life-changing moment. It opens up doors. Now I can finally buy a house, now I can finally get married, now I can afford to quit my job and start my home business.
Q: Are certain age groups struggling more than others?
A: Millennials make up almost half of all clients we’re counseling right now, but the largest growth has been among consumers in their 20s — up about 26% year over year. Gen Z seems to be turning to us at the greatest rate right now. They don’t have quite as much debt as older generations, but the greatest growing demand seems to be among the youngest adult generation.
Q: In this world of debt, what gives you hope?
A: Just the resilience we see among our clients. They’re determined to pay it off, to pay back what they owe, to avoid bankruptcy, to do the right thing. A lot of folks are working towards a larger goal. ‘I want to own a home someday, but I know I can’t do it if I’m carrying $50,000 in credit card debt.’ I’m always inspired by the long-term goals that people have, and how once they pay off their debt, they’re finally able to achieve them.
Q: What do you say to someone who feels so hopeless they’re not even going to bother getting help?
A: Just understand that you’re not alone, and that there are ways to climb out. Americans tend to have very black-and-white thinking about their debt, like ‘I can either do this on my own, or I have to declare bankruptcy.’ Sometimes they’re just not educated about the options–a debt management plan, a debt settlement, a creditor hardship program. There are multiple options you can explore, but not many people are fully educated on them.