Lending Tree, an online lender, reported last week that nearly half of U.S. households that used “buy now, pay later”—loans offered at online store checkouts by companies like Affirm and Klarna—had been late on their monthly payment over the past year. That’s up from the 41 percent who paid late the year before, but more importantly it was the latest in a series of worrisome news about how many families are falling behind on all kinds of debt. And that’s not just a problem for those families but a collective warning sign for the entire U.S. economy.
In March, the Century Foundation found that half of credit card holders weren’t able to pay their balances every month, and together carry $1 trillion in credit card debt. As of last October, which marked two years since the expiration of the Biden-era pause on federal student loan repayments, 11 percent of borrowers had fallen three or more months behind, according to a FICO Credit Score report released a month ago. And borrowers are also behind on auto loan and mortgage payments, after losing the breathing room they got from Covid-era payment programs.
Are we on the verge of a debt crisis? What the data shows for certain is that families have been struggling for some time to keep up, and it’s going to get harder for them to do so, especially under President Donald Trump. “Finances are brittle,” said Mike Pierce, a co-author of the Century Foundation report and the executive director and co-founder of Protect Borrowers, a borrower advocacy organization. “[Families] feel like they’re operating without a net. And you actually do see that in the data, that people are leveraged in a way that they haven’t been in recent memory.”
All of these problems share a core cause: Prices and interest rates are both high. “Stuff’s too expensive,” Pierce said. “People are turning to debt to be able to deal with routine expenses that they were paying for in cash as recently as half a decade ago, and then that’s having all of these spillover effects across other kinds of consumer credit.”
The increases in home and mortgage prices have meant that fewer people are buying homes, but some purchases aren’t as easy to forgo. That’s especially true for cars, which many Americans need to get to work, school, day care, and so on. The average cost of a new car has hit $50,000, making monthly payments on a car loan about $775. More families are buying used cars to cope, but eventually families need to replace their older vehicles—and used car prices last month hit their highest level since the summer of 2023.
Since families need their homes and their cars, they’re likely to keep paying their mortgages and auto loans first, but the monthly costs of trying to keep up are knocking their budgets out of whack. To cover price increases on regular goods like groceries, they’re using credit cards and buy now, pay later, or BNPL. In the Lending Tree survey, 29 percent of borrowers said they’ve used BNPL to buy groceries, compared to 14 percent two years ago, and 54 percent said they wouldn’t be able to make ends meet without these short-term loans.
The Century Foundation report also found that more people are using their credit cards more often. Nearly a third are using at least 30 percent of their available credit. An increasing number of Americans are also getting new credit cards and maxing them out. Carrying a balance from one month to the next costs Americans trillions in interest and compounds their debt. Late payments also tend to raise borrowers’ interest rates, causing them to spiral further into debt.
The lowest-income families are hit the hardest by these increasing costs, and they’re missing their payments at the highest rates. But those with higher incomes are also falling behind, and credit scores overall are falling. As the financial pressure builds, borrowers begin falling behind on more critical payments, like mortgages.
But the first payments that people usually skip are for student loans. The FICO report found that this is the lowest-priority debt for borrowers, probably in part because Biden paused federal student loan repayment for three years and then followed it with a one-year grace period where borrowers’ delinquency wouldn’t be reported to credit agencies. That’s over now: The Trump administration has started a new collection program that will be run by the Treasury Department and plans to begin going after borrowers this summer. “I think that this just takes even more money off the table when people are trying to deal with rising costs and all these other financing costs going up,” Pierce said. “Having [to pay] an extra couple-hundred bucks a month for a student loan that’s been on pause since before the pandemic is more than many people can bear.”
Some of these statistics are the worst they’ve been since the Great Recession. Pierce doesn’t think we’re headed for a catastrophe quite that bad, but he does think borrowers need a rescue. It would help if Trump fulfilled his campaign promise to cap credit rates at 10 percent, Pierce said. In the meantime, states can pass new laws to cap interest rates and protect borrowers.
The problem is that the broader economy doesn’t suggest there’s any relief in sight. Trump’s war against Iran is driving up household costs, notably at the gas pump but also for all sorts of consumer goods (because transportation is now more expensive, owing to high oil prices). And this is on top of the “Trump Chaos Tax,” a term coined last year by Seth Frotman and Julie Margetta Morgan at Protect Borrowers to describe the knock-on effects of Trump and the Republicans’ “chaotic and reckless economic agenda over the past few months—tariffs, tax giveaways for the wealthy, and more.” This chaos has caused the Federal Reserve to pull back on interest rate cuts, which Frotman and Morgan estimate is costing families $210 per month.
In deciding what to buy, when to buy it, when to take on and pay off debt, and other important financial matters, businesses and buyers need to have some sense of where the economy is headed and what it will mean for them. But that’s impossible under the Trump administration. The president seesaws between promises of a peace deal with Iran and eradicating a “whole civilization.” Trump claims the cost of gas will plummet once a deal is struck, while his energy secretary says gas prices won’t fall back below $3 until next year. And on top of that, we’re about to get a questionable new Fed chair handpicked by Trump.
So it’s safe to say that many Americans are feeling uncertain, which means the state of the economy could become even more precarious as lenders mitigate risk by raising lending standards and interest rates, and families pull back on spending. If we’re not in a debt crisis yet, we could be hit with one very soon.
