Your credit score reflects more than just how you borrow. It also responds to how you manage bills, track spending, and make consistent financial decisions. When these actions become part of your daily routine, it can be easier to maintain good credit habits and support long-term financial health.

1. Turning on autopay across your accounts

Autopay helps prevent late payments, which can have a significant impact on your credit score. Even a single missed payment can leave a lasting mark. Setting up automatic minimum payments on credit cards, loans, and utilities can reduce that risk. You can still aim to make extra payments manually to pay down balances or avoid interest.

Try this: Set up autopay for the minimum amount due on all credit accounts, then pay off additional amounts manually when you know your cash situation later in the month.

2. Paying your credit card weekly instead of monthly

Credit utilization is the amount of credit you use compared to your total limit, and it plays a significant role in your credit score. Even if you pay your card in full each month, a high balance at any point in the billing cycle can increase your reported utilization. Making weekly payments helps lower your balance, which may help support your score.

Try this: Choose a frequently used card and make a payment each week to help keep the balance in check.

3. Assigning one subscription to a credit card

A recurring charge such as a streaming service can help keep a credit card active. Using a credit card for a small monthly bill and paying it off in full each month supports payment history while minimizing the risk of overspending.

Try this: Pick one stable monthly subscription, connect it to a card you rarely use, and automate billing and the full payment every month.

4. Choosing a credit-building tool

Some banks and fintechs offer tools like secured credit cards, rent or utility payment reporting, and credit monitoring. These options can help you build positive habits and strengthen your credit using accounts you already manage.

Try this: Explore available credit-building tools and see which one fits your needs and goals.

5. Putting a utility bill in your name

Utility payments are not typically reported to credit bureaus unless you use a third-party service that shares that information. Taking responsibility for a household bill may give you more control over payment timing, and opting in to a reporting tool can help include those payments in your credit history.

Try this: If possible, take over one shared bill, such as internet or electricity, and explore services that allow you to report on-time payments.

6. Living in one place longer

Frequent moves increase the risk of lost mail or missed bills, perhaps leading to late payments or collections. A stable address supports better bill management and may help lenders see you as more reliable. If moving often is necessary, digital billing and mail forwarding can help reduce disruptions.

Try this: When possible, stay at one address for at least 12 months. If not, switch to paperless billing and set account reminders.

7. Using rent reporting services

Most rent payments do not appear on your credit report unless you take action. Some third-party services allow renters to report payments even if they are not on the lease, but success depends on landlord participation and reporting practices.

Try this: Sign up for a rent reporting service that integrates with your payment method and check which credit bureaus they report to.

8. Reducing regular expenses wherever possible

Lower monthly costs can help ease financial pressure, making it less likely you’ll miss a payment or carry a high credit card balance. Staying on a shared phone plan is one example, but any recurring expense you can trim may support better money management.

Try this: Review your regular bills and look for options to share, reduce, or eliminate costs that don’t need to be individual.

9. Turning a hobby into extra income

Earning a little extra money from a hobby or side gig can help you cover bills without leaning on credit. A modest income stream may allow you to pay down balances, avoid overdrafts, and make more consistent payments, supporting healthy credit habits.

Try this: Sell handmade items, offer a service, or teach a skill online. Use the extra income to cover at least one regular expense.

10. Opening a credit card for strategic use only

If you have limited or no credit history, opening a new card can help establish a positive payment record. Assigning it to one small recurring expense and paying it off monthly keeps your utilization low and adds to your credit file. It is important to manage the account responsibly.

Try this: If you are building credit from scratch, consider a secured or low-limit card and use it only for one predictable monthly charge.

The way you choose to live affects your credit

Building credit doesn’t always require major changes. In many cases, simple lifestyle choices, from automating bills to managing shared expenses, can help support responsible credit use. By understanding how daily decisions affect your credit profile, you can take steady steps toward better financial health over time.

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Technology and financial innovation are changing the way Americans handle money. Some of these changes provide consumers with more choices and better efficiency. However, some carry risks and additional costs.

The Federal Reserve Bank of Atlanta recently updated its annual Survey and Diary of Consumer Payment Choice. It tracks how Americans pay for goods and services, whether with cash, checks, credit cards or other methods. Looking at how these results have changed over time offers a clear view into the shifting landscape of consumer payments.

As new payment tools become more common, it is helpful to understand where they differ. Some come with added fees, slower processing or increased fraud risk, while others may offer speed or convenience.

How cash, debit, and credit card use have changed osince 2015

Cash is in decline, but far from dead

It’s probably no big surprise that cash is declining as a payment method. The surprising part may be that the vast majority of Americans still use it on some occasions. Cash was used for 14% of consumer financial transactions in 2024, down from 33% in 2015.

However, it’s not as if Americans have abandoned it altogether. The survey found that 83% of Americans had used cash within the past 30 days. That’s down from 87% a year earlier, but still represents over four out of five consumers.

Part of the decline in cash has been driven by the rise of online shopping and the growing prevalence of cashless venues for events like concerts and sporting events. In those cases, consumers don’t have the option of using cash. However, there are also positive reasons for moving away from cash, such as greater security, convenience and faster transactions.

Most people still find occasions to cash. Some of this may be prompted by the recent rise in surcharges on credit and debit card transactions. It pays to keep your options open.

Paper checks are fading fast

Americans have moved more decisively away from using paper checks. They represented just 2.5% of consumer payments last year, down from 6.5% in 2020.

But paper checks are not dead yet. They have a niche as a payment for large transactions. The average payment by paper check was $633 in 2024. The averages for cash, credit cards and debit cards were all under $100.

One thing that may discourage consumers from using checks is their vulnerability to fraud. Thieves often intercept checks in the mail, either when banks send checkbooks to customers or when people mail out payments themselves. “Check washing,” a process by which criminals change the information written on checks, has become a frequent problem. Also, modern photo editing software has made creating phony blank checks relatively easy.

If you still use checks, take steps to protect them. Avoid leaving outgoing checks in your mailbox for pickup. Instead, drop them in a secure mailbox or take them to the post office. If you order new checks, note the order date and contact your bank if they do not arrive within a reasonable timeframe.

Credit or debit? The battle for leadership

Credit cards are the leading method of payment used by Americans, followed by debit cards.

Debit card use has stayed steady over the past decade, accounting for 29.6% of transactions last year. That is nearly unchanged from the 29.5% share in 2015.

Over the same time, credit card usage has risen sharply. This has allowed credit cards to pass debit cards as the most frequent form of consumer payments. Credit cards represented just 18.3% of transactions in 2015, but this rose to 34.5% last year.

Some customers may prefer credit cards because they offer more fraud protection than debit cards. Also, credit cards are more likely to offer rewards. However, their growing use over the past ten years has coincided with a sharp rise in credit card debt. Some customers may prefer credit cards because they offer more fraud protection than debit cards. Credit cards are also more likely to offer rewards. However, their growing use over the past ten years has coincided with a sharp rise in credit card debt. Carrying a balance can lead to interest charges and late fees, and if payments are missed or maxed-out limits are common, it can also hurt your credit score.

According to the Federal Reserve Bank of New York, credit card debt has grown by 73% over those ten years. Allowing debt to accumulate like that is an expensive habit compared to paying with a debit card. With a debit card, you only spend money already in your bank account. So, there is no debt, no interest charges and no potential for late payment fees.

With credit cards, you borrow money whenever you use the card. You can escape interest charges if you pay the balance in full each month. However, many Americans don’t. This helps explain why credit card debt has risen as they’ve become a more popular alternative to debit cards.

Be wary of surcharges when paying bills

Whether you use a credit card or a debit card, watch out for surcharges. These fees are increasingly added to cover the vendor’s transaction processing fees.

While surcharges at restaurants get a lot of attention, they are even more common on certain types of bills. Government payments like taxes and fees often include surcharges, as do school, rent and utility payments. For these expenses, it may be worth using a different payment method, such as a bank transfer.

What consumer payment trends mean for your everyday finances

Payment methods will keep evolving, but the fundamentals stay the same. Know your options, weigh the risks, and choose the method that works best for your needs, not just what is most convenient. Understanding the pros and cons of each option can help you avoid fees, reduce risk, and stay in control of your finances.

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Hope for the best, prepare for the worst, is how the old saying goes. Lately, consumers seem to be doing the opposite.

The latest Survey of Consumer Expectations from the Federal Reserve Bank of New York shows that consumers expect economic trouble on multiple fronts. You’d never know it, though. Their borrowing and spending patterns show little sign of caution.

Many consumers appear to be bracing for economic trouble while continuing to spend and borrow with little visible adjustment. This contrast highlights a disconnect between expectations and behavior. That gap could increase financial risk if current concerns about inflation, income, and employment prove accurate, making it more important than ever to monitor your credit and protect overall credit health.

Expectations fall for income, jobs, and inflation

The survey found that consumers became more pessimistic about several aspects of the economy and their personal finances during the first quarter of 2025:

• Inflation expectations remained at an average of 3.6% for the year ahead, but rose by 0.2% for the next three years. That brought the three-year expectation to 3.2% a year, the highest level since mid-2022. That was about the peak of the post-pandemic inflation surge. This three-year expectation shows that consumers expect rising inflation to stick around for a while.
• The expectation that unemployment will be higher a year from now rose to its highest level since April of 2020. That was back when pandemic lockdowns caused massive layoffs.
• The median expected growth in household income dropped by 0.2% to 2.6%. That’s the lowest level since April 2021.

In short, households expect inflation to rise, their incomes to drop and the risk of job losses to increase. And that’s not all the bad news….

Consumer debt grows alongside missed payments

Inflation, slowing income growth and rising unemployment would be challenging under any circumstances. What makes them even more threatening is that consumers already have high debt loads and struggle to keep up.

Here are the latest statistics on this problem:

• Based on the Q1 2025 Household Debt and Credit Report from the New York Fed, total consumer debt has grown by 27% over the past five years.
• The fastest growth rate has been in credit card debt, typically the most expensive form of debt.
• Credit cards also have the highest percentage of balances with 90 days or more overdue payments. This percentage has been rising fast. It now stands at 12.31%, the highest in 14 years.
• The late payment problem looks like it might get worse. The Survey of Consumer Expectations found that the expected probability of missing a minimum debt payment in the next three months rose in the first quarter. It now stands at 13.9%, up from 10% just four years ago.

Spending outpaces both income and inflation

With household finances already strained by debt and expectations of a worsening economy, it would be reasonable to see signs of restraint. So far, that shift has not appeared.

Credit card debt declined in the first quarter of 2025, but that’s not remarkable. The first quarter of the year is when people pay their holiday shopping bills. Credit card debt has declined in the first quarter of 21 of the last 22 years (the only time it didn’t, it stayed level). However, credit card debt has risen steadily over those 22 years, from $700 billion to $1.182 trillion.

Significantly, consumer debt overall rose in the first quarter of 2025, so people are still borrowing. Based on their spending plans, they expect to continue borrowing. The Survey of Consumer Expectations found that households expect their spending to grow twice as fast as their incomes over the next year, and faster than the inflation rate.

So, despite having trouble paying for the debt they’ve already got, consumers are on track to take on even more.

Credit card debt dips in Q1 but remains elevated

The recent decline in credit card debt offers a modest sign of improvement. Consumers have reduced balances in 21 of the last 22 first quarters, suggesting that short-term discipline is possible.

Given that the New York Fed’s survey points to growing concerns about the economy, a more sustained effort to reduce debt could help households prepare for potential financial stress.

Time to align expectations with action

Consumers are not blind to the economic outlook. They see the possibility of rising inflation, falling income, and greater job insecurity. But so far, their financial decisions tell a different story.

Spending continues to rise, debt is growing, and delinquencies are increasing. That disconnect could leave many households vulnerable if economic conditions worsen. Now may be the time to match concern with preparation—by reducing debt, building reserves, and paying closer attention to credit health.

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This is not a formal assessment. It will not impact your credit score. But the way you answer these 10 yes-or-no questions might reveal how your habits might be shaping your credit profile. Be honest with yourself, this is for your own insight only. Are you credit smart?

1. Do you pay off your credit cards in full each month?

Paying your balance in full each month means you are not carrying debt from one billing cycle to the next. This not only saves you money on interest charges but also keeps your credit utilization low, both of which are good for your credit score. If you only pay the minimum, interest adds up fast, and you may find yourself stuck in a cycle of revolving debt. Lenders prefer borrowers who manage credit responsibly and pay consistently.

2. Do you know your credit score right now?

Your credit score is a snapshot of how lenders may view your financial trustworthiness. Knowing your score puts you in control. You can track improvements, catch sudden drops, and understand where you stand before applying for loans, credit cards, or even rental housing. Many people do not realize how often their credit score plays a role in decisions that affect daily life. Monitoring it regularly gives you a head start on addressing potential problems.

3. Have you made every payment on time in the past year?

Payment history is the single most important factor in most credit scoring models. A consistent record of on-time payments builds trust with lenders and supports a higher credit score. Missed or late payments — even just once — can stay on your credit report for up to seven years and lower your score significantly. If you have made every payment on time over the past 12 months, that is a strong indicator of credit responsibility.

4. Do you keep your credit usage below 30%?

Your credit utilization ratio is the percentage of your available credit that you are using. Experts generally recommend keeping this ratio below 30%, and ideally lower. For example, if your credit limit is $10,000, try to keep your balance under $3,000. High utilization can make you appear financially overextended, even if you pay on time. A lower ratio suggests you are using credit wisely rather than depending on it.

5. Have you checked your credit reports within the past 6 months?

Your credit score depends on the information in your credit reports, so it is important to make sure that information is correct. Mistakes, outdated accounts, or signs of identity theft can hurt your score and affect your chances of getting credit approval. You are entitled to one free report per year from each of the three major credit bureaus at AnnualCreditReport.com, but many people check more often using a credit monitoring service. Reviewing your reports at least twice a year helps you catch issues early and protect your credit health.

6. Do you avoid applying for credit unless you have a good reason?

Some people sign up for every new reward card or store discount they’re offered, but this can add up quickly. Each application results in a hard inquiry on your credit report, which can lower your score if too many appear in a short time. Opening new accounts without a clear purpose can also shorten your average account age and clutter your credit profile. Applying for credit only when it truly benefits your financial plan helps keep your credit history healthy and easier to manage.

7. Do you still have your oldest credit card open?

The length of your credit history makes up a portion of your credit score. Keeping older accounts open, especially if they have no annual fee and are in good standing, can help boost your score. When you close a long-standing account, it may shorten your average credit age and reduce your total available credit, both of which can impact your score. Even if you do not use your oldest card often, it can still be helping you in the background.

8. Do you use reminders or auto-pay for bills?

Missing payments is one of the quickest ways to damage your credit score, but it often happens simply because people forget. Setting up automatic payments for at least the minimum amount due, or using digital reminders, can help you stay on track. It also reduces stress and gives you peace of mind. Small systems like these can make a big difference in your long-term credit health.

9. Do you follow a budget or spending plan?

Credit health is not just about borrowing. It is also about managing the money you already have. A budget, even if you do not write it down, helps you avoid overspending, prepare for irregular expenses, and make room for paying down debt. Without a plan, it is easy to spend more than you intended and fall behind on payments. A spending plan keeps you focused and can support smarter decisions about credit use, especially during tight financial periods.

10. Do you steer clear of payday loans?

Payday loans and similar short-term lending products often come with very high interest rates and fees. They may seem like a quick fix, but they can trap borrowers in cycles of debt. These loans typically do not help your credit score and can make financial challenges worse. Finding alternatives such as negotiating with creditors, using a credit card with a lower rate, or seeking credit counseling, can be a better path forward.

How credit smart are you?

Your answers can reveal helpful patterns in how you manage credit. This is not a test with right or wrong answers, and your score will not change based on this quiz. But it might help you reflect on your habits. Consider it a quick snapshot of your current approach to credit. Count up your yeses:

1. Do you pay off your credit cards in full each month?
2. Do you know your credit score right now?
3. Have you made every payment on time in the past year?
4. Do you keep your credit usage below 30%?
5. Have you checked your credit reports within the past 6 months?
6. Do you avoid applying for credit unless you have a good reason?
7. Do you still have your oldest credit card open?
8. Do you use reminders or auto-pay for bills?
9. Do you follow a budget or spending plan?
10. Do you steer clear of payday loans?

If you answered “yes” to most of these questions, you may already have habits that support a healthy credit profile. If you answered “no” to a few, that is not a failure. It just highlights areas where you might want to focus next. Credit habits can evolve. Even small changes can make a difference over time, especially when you stay consistent. You can get the most complete view of your credit score with Sesame Grade now.

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Consumer credit habits in 2025 reflect growing financial anxiety

In early 2025, signs of economic stress are beginning to show in household credit behavior. With inflation still high and the U.S. economy contracting slightly in the first quarter of the year, consumers are adjusting how they spend, save, and borrow. These changes are visible in everything from rising credit card delinquencies to shrinking loan applications and growing emergency fund activity.

Lenders and analysts are watching these shifts closely, as they reflect not only financial caution but also the potential for deeper instability in the credit markets.

Credit card balances remain high while payments slow

Total U.S. credit card balances reached $1.13 trillion at the end of 2024, according to the Q4 2024 Household Debt and Credit Report from the Federal Reserve Bank of New York. What has changed is how consumers are managing that debt. A growing number of households only make minimum payments, a warning sign that many struggle to keep up.

Delinquency rates also increased. The report shows that 3.5 percent of credit card debt was at least 30 days late in Q4 2024, up from 2.6 percent a year earlier. Rising interest costs and inflation-driven budget strain are key factors.

Fewer new credit applications signal borrower hesitation

Many Americans are thinking twice before taking on new debt. According to the January 2025 Senior Loan Officer Opinion Survey from the Federal Reserve, demand for credit cards and auto loans declined throughout the second half of 2024.

At the same time, banks are tightening lending standards, anticipating more credit risk ahead. This combination is shifting consumer credit habits toward more conservative borrowing and reduced reliance on financing for non-essential purchases.

High interest rates are shaping everyday decisions

With the Federal Reserve maintaining elevated interest rates, the average credit card APR is hovering around 21.6 percent, according to the March 2025 G.19 Consumer Credit Report from the Federal Reserve. The high cost of borrowing is pushing many consumers to rethink how they use credit, particularly for everyday expenses.

Some opt for balance transfer cards, personal loans, or other forms of lower-cost debt to manage existing balances. Others are cutting back on credit use altogether in favor of budgeting or seeking support from family members.

Economic uncertainty is driving defensive financial behavior

Fears of a mid-2025 recession are affecting how Americans handle money. According to a recent MarketWatch article, more than half of Americans report that their financial situation is worsening, and many are delaying large purchases such as homes and cars. Additionally, a Redfin survey cited in the same article indicates that about one in four Americans are canceling plans to make big purchases due to economic uncertainty.

Emergency savings accounts may be gaining renewed attention as more households brace for economic instability. Consumers concerned about job security or rising expenses may focus on protecting their credit scores by paying on time and keeping credit utilization low. Some may also turn to free credit monitoring tools as a way to catch early signs of financial trouble.

What to do if your credit habits need a reset

If managing your debt feels more difficult in 2025, it may be time to take action. Consider these strategies:

• Pay more than the minimum whenever possible to reduce interest charges.
• Review your monthly budget and look for places to cut back.
• Check your credit reports regularly to monitor for errors or fraud.
• Explore debt consolidation options that offer lower interest rates.
• Use tools from services like Credit Sesame to track your credit and stay informed.

Use smarter credit habits to stay one step ahead

Consumer credit habits in 2025 are shifting toward caution, but caution does not mean standing still. As borrowing slows and delinquencies climb, staying informed and acting early can make all the difference. By building flexibility into your budget, using credit selectively, and monitoring your score, you may be better positioned to face financial surprises without falling behind.

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Recent trends in early 2025 suggest consumers have mixed feelings about the economy, caught between the urge to spend and the hesitation to invest.

Short-term spending remains strong, showing a continued willingness to borrow and buy.

However, when it comes to making long-term commitments, such as purchasing a home, confidence is lacking. This conflicting behavior may be undermining long-term financial health.

Spending is up – just not for homes

Retail spending rebounded strongly in March 2025, rising by 1.4%, the largest monthly gain in over two years. Some economists believe this may reflect consumers rushing to make purchases ahead of new tariffs. Regardless of the cause, it highlights a focus on immediate consumption.

In contrast, home buying continues to decline. Existing home sales fell by 5.9% in March and are down 1.7% year-to-date. Over the past two years, sales have dropped by 19.3%.

The Fannie Mae Home Purchase Sentiment Index, which measures consumer attitudes toward housing, dropped by 4.9% last month and is now 11.3% below its historical average. Fewer consumers believe it is a good time to buy a home.

Preference for shorter-term spending is reflected in debt mix

The shift toward short-term spending is also evident in the growth of different types of debt.

According to the Federal Reserve Bank of New York’s Household Debt and Credit Report, credit card debt has increased more rapidly than any other form of consumer debt since the end of 2020. From the fourth quarter of 2020 to the fourth quarter of 2024, credit card balances rose by 47.9%. By comparison, mortgage debt grew by 25.5% over the same period.

This growing reliance on revolving credit suggests consumers are prioritizing short-term spending over long-term investment, a trend that could pose risks for future financial stability.

Reasons why credit card debt is more toxic than mortgage debt

Not all debt impacts consumers equally. In many ways, mortgage debt is healthier than credit card debt.

• Lower interest rates. The average interest rate on a 30-year mortgage is 6.81%, compared to 21.91% for credit cards. Every dollar of credit card debt costs consumers more than three times as much in interest charges.
• Investment versus consumption. Buying a home represents a long-term investment. A mortgage helps finance an asset that typically appreciates over time. In contrast, credit card debt often covers short-term expenses, such as entertainment or food, which provide only temporary value.
• Defined repayment schedule. Mortgage loans follow a structured repayment plan, guiding borrowers toward debt payoff. Credit card minimum payments vary and often allow balances to grow, rather than decline.

These differences highlight why increasing reliance on credit cards can undermine long-term financial health.

Building better long-term confidence in financial security

The decline in the Home Purchase Sentiment Index suggests that many consumers lack confidence in making long-term financial commitments. Instead, they are focusing on short-term spending, particularly through credit cards.

Shifting away from heavy credit card use could help strengthen household finances. Paying down balances can improve credit scores, which in turn can open access to better mortgage rates and other borrowing opportunities.

Strengthening financial habits today could build the security consumers need to make significant investments in the future and reduce their reliance on costly short-term debt.

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This is one of those times when staying informed can add to your confusion. The news is full of mixed signals: on-again, off-again tariffs, speculation that the Fed may cut rates, unless it raises them, and sharp drops in the stock market followed by significant gains. It can make you feel like you’re being pulled in several directions at once.

It is not surprising, then, that recent weeks have shown signs of growing panic among consumers and investors. But panic is only likely to make things worse. In times like these, you should not be frozen by fear. Nor should you be pushed into rash decisions. The key is to act without panicking.

Economic dilemma: The Fed’s problem is your problem

The economic dilemma facing consumers was summed up recently by Fed Chair Jerome Powell. He described a “challenging scenario” in which new tariffs could drive up inflation while also slowing growth.

This puts the Fed in a bind. Its mandate is to both control inflation and support economic growth. Tackling inflation often requires raising interest rates, while supporting growth may necessitate cutting them. When inflation rises and growth slows simultaneously, it limits the Fed’s ability to respond effectively.

Powell’s concerns are echoed in recent consumer surveys. The Index of Consumer Sentiment, a widely followed gauge of consumer confidence, fell by 11% over the past month and is down 30% since December. The same survey found consumer expectations for inflation are the highest they have been since 1981.

Similarly, the Federal Reserve Bank of New York’s Survey of Consumer Expectations indicates that people anticipate higher inflation and a weaker economy in the year ahead. It also reveals that credit is becoming harder to get, which could slow spending for households that have been relying on borrowing to get by.

Like the Fed, many consumers feel caught between inflation and sluggish growth. This tension is showing up in both consumer and investor behavior. As fear and confusion grow, the challenge is to keep making smart decisions without panicking.

Making major purchases

Consumer spending is a clear example of recent economic confusion. While consumer sentiment has dropped sharply in recent months, retail sales jumped by 1.4% in March 2025. That followed a 1.2% decline in January. Economists believe the March rebound may have been driven by fears that tariffs would soon drive prices higher.

Many consumers may have rushed to make major purchases before those tariffs took effect. But with confidence in the economy falling, is that a smart move?

It could make sense to buy before prices rise, especially if it is a planned purchase and you can afford it without taking on long-term debt.

On the other hand, overborrowing to buy now may backfire. Credit card interest rates tend to be significantly higher than inflation, so carrying a balance could ultimately cost more than any savings from beating the price increase.

Retirement investments

The stock market has also reflected growing uncertainty. In the first 13 trading days of April, the S&P 500 recorded five daily declines of 1% or more. It also posted two daily gains above 1%, including a sharp 9.5% rise.

This level of volatility underscores the unsettled state of investors. Such market movements can lead people to make short-term decisions about what should be long-term investments.

It makes more sense to stay calm and look for opportunities. Price dips can present opportunities to acquire solid, world-class companies at lower valuations. It may also be a good time to rebalance your portfolio if market shifts have caused it to deviate from your long-term goals.

Avoid the temptation to jump in and out of the market based on emotion. Reactionary decisions often lead investors to buy high and sell low.

Credit maintenance

Consumer credit trends reflect many of the same tensions affecting the broader economy. Americans are still leaning heavily on credit cards, pushing balances to record highs. At the same time, delinquency rates are rising sharply. Many households also report that credit is becoming harder to get, as lenders tighten their standards. So, how should you approach this complicated relationship with credit?

It makes sense to take steps to reduce your reliance on debt. With lenders pulling back, this is a good time to focus on improving your credit score. If possible, build up savings that can help you carry through periods of uncertainty.

Do not ignore the problem; do not panic. Missing payments or avoiding creditors may feel like a short-term escape, but it often leads to late fees, penalty interest rates, and long-term damage to your credit. If you are struggling, contact your lenders to discuss a payment plan before the situation worsens.

Stay steady when the outlook is uncertain

When the economy sends mixed signals, it is easy to feel overwhelmed. But staying calm, focused, and practical can help you avoid costly mistakes.

You may not be able to control inflation, interest rates, or the job market, but you can control how you respond. Make thoughtful decisions, avoid panic-driven moves, and focus on actions that protect your long-term financial health.

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The latest consumer credit data delivered a rare twist: in February, total non-mortgage consumer debt dipped. After years of steady increases, any decline might seem like a welcome change.

But zoom in, and the picture gets murkier. This small drop is less a sign of financial strength than a warning flag. With delinquencies rising and consumers leaning on high-cost debt, the story behind this dip reveals mounting pressure in American household finances.

Rare decline in consumer debt during February

The Fed reported that consumer debt outstanding fell by nearly $810 million in February. To put this in context, that figure represents less than 0.02% of the almost $5 trillion in non-mortgage debt American consumers owe. Still, though slight, any decline is at least a step in the right direction.

Those positive steps have been few and far between in recent years. February’s reduction in non-mortgage debt was only the fourth monthly decline since the end of 2020. During that time, non-mortgage consumer debt increased by over $800 billion. So, while consumers didn’t make substantial progress towards paying down their debt in February, at least they stopped bingeing for a month.

Cautious consumers heighten recession danger

That pullback in spending isn’t all good news. Slower consumer spending is almost certain to mean less economic growth.

Consumer spending accounts for roughly two-thirds of the US Gross Domestic Product. That means any reduction in consumer spending is almost certain to translate to a slowdown in overall economic activity.

There are three main components to GDP: personal consumption, government spending, and business investment. If consumers are borrowing less, personal consumption is likely to fall. The government is cutting spending. Many businesses are taking a wait-and-see attitude towards investment as they try to make sense of new economic policies such as tariffs.

In short, all signs point to an increased risk of a recession. Given the lead role of consumers in the economy, that’s a bad side of the news about slower borrowing.

Consumers continue to choose the wrong kind of debt

Another reason for concern in the recent numbers on consumer debt is that they indicate many are continuing to show a preference for more expensive forms of debt.

While installment debt fell at a seasonally-adjusted annual rate of 0.3% in February, revolving debt actually increased a little. Installment debt consists of loans, while revolving debt is primarily credit card balances. The problem with people choosing to borrow on credit cards rather than with loans is that credit card debt typically carries much higher interest rates.

For example, the average interest rate charged on credit card balances is 21.91%. Meanwhile, the average personal loan interest rate is just over 10% cheaper, at 11.66%. Mortgage and auto loan rates are lower still.

The high interest rate charged to credit cards means debt can continue growing unless users control their balances. Recent evidence suggests a growing number of users are having trouble doing that.

Payment details reveal a growing number of consumers on the brink

Recent data from the Federal Reserve Bank of Philadelphia shows the percentage of credit card accounts that are 90 days or more overdue is at the highest level in the 12 years they’ve been tracking this statistic. Ninety days overdue is considered seriously delinquent and is likely to hurt a person’s credit score.

This is the type of problem that starts to feed on itself. Those overdue payments will likely incur late fees, thus adding to the amount owed. The overdue balance will probably be charged a penalty interest rate, a higher interest rate charged on delinquent accounts. Therefore, the account will accrue additional interest charges more rapidly.

Not only will this cause problems for the overdue credit card account, but the resulting damage to the consumer’s credit report may result in them being charged higher rates on other accounts. Thus, a person who cannot make their payments will face a surging wave of new debt.

The percentage of accounts having this problem is already at a record high, and the Philadelphia Fed data suggest many other consumers may soon join them. The percentage of accounts making no more than the minimum monthly payment is also at an all-time high.

If a customer can’t afford to pay more than the minimum, it’s a sign that their finances are already stretched to the breaking point. Also, minimum payments are generally so low that new charges will likely add to their debt.

In short, a one-month decline in consumer debt does not mean Americans have solved their borrowing problem. Getting control of that problem will take:

• A sustained reduction in borrowing — especially by those already struggling to make payments.
• Paying down accounts more aggressively, rather than just making the minimum payment.
• Making better choices about avoiding high-cost debt.
• A greater awareness of how much an unhealthy credit score can cost you.

What this debt dip is really telling us

February’s debt decline is unusual but not necessarily encouraging. It may signal financial strain rather than improved money habits. The overall trend remains worrisome, with credit card delinquencies rising and more people making only minimum payments. Real progress will take more than a single dip. It requires better borrowing decisions, steady repayment, and a clearer understanding of how debt and credit scores impact long-term financial health.

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Disclaimer: The article and information provided here are for informational purposes only and are not intended as a substitute for professional advice.

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Americans are increasingly worried about rising prices, and credit card interest can quietly make everyday spending even more expensive.

Compared to other major types of consumer debt, credit cards carry significantly higher interest rates. The surprising part? Much of that cost may be avoidable.

A new report from the Federal Reserve Bank of New York breaks down why credit card interest rates are so steep—and offers insights that could help you pay less.

How credit cards stack up against other debt

Interest rates vary widely across different types of consumer debt, and credit cards top the list. According to data from the Federal Reserve and Freddie Mac, the average credit card rate is nearly three times higher than rates for mortgages or auto loans, and roughly 10 percentage points above the average personal loan rate.

This stark difference raises the question of why credit card interest rates are so much higher. The answer lies in the interest rate spread — the difference between a credit card’s interest rate and the Federal funds rate.

The Fed funds rate reflects what it costs banks to borrow money. That rate is just a starting point. Like a grocery store that marks up the price of bread to cover operating costs and earn a profit, credit card issuers add their own layers of cost. These include risk management, operations, marketing, and a profit margin.

The recent New York Fed paper breaks down those layers, showing why the spread on credit card rates is so wide compared to other types of debt.

How credit risk drives up your rate

Credit risk is the possibility that a borrower will not repay what they owe. Most credit cards are unsecured, meaning there is no collateral, so lenders rely heavily on a borrower’s creditworthiness.

Credit card companies add a cushion to interest rates to cover the losses from missed payments. The riskier the borrower, the larger the cushion.

This plays out clearly in the data. According to the New York Fed, customers with perfect 850 credit scores paid an average interest rate 7.22% above the Fed funds rate. For those with 600 credit scores, the spread jumped to 21%.

That makes sense up to a point. Higher-risk borrowers are more likely to default, and lenders adjust their rates accordingly. But credit risk alone does not fully explain the gap.

The average interest rate spread in the study was 14.5%, while current charge-off rates — what issuers actually lose to defaults — are around 5%. Even during the Great Recession, they did not exceed 10%. So, something more than risk is keeping those rates high.

The hidden cost of credit card marketing

The New York Fed study found that marketing costs are a significant reason for high credit card interest rates.

Credit card issuers have substantial operating expenses, and marketing is a big part of that. As a share of assets, these banks spend about 10 times more on marketing than other banks.

Think about how often you see credit card ads—and how many feature celebrity spokespeople. Prime-time ad slots and big-name endorsements are not cheap. Those costs get passed along through the interest rates that cardholders pay.

Inflation risk and rate caution

Although not addressed in the New York Fed study, inflation risk may be a growing factor behind persistently high credit card rates.

In theory, inflation is already baked into the Fed funds rate and should not affect the interest rate spread. However, credit card rates have not fallen as quickly as inflation or the Fed funds rate. In the third quarter of last year, the Fed funds rate dropped by 1%, yet average credit card rates fell by only 0.57%.

Credit card issuers were caught off guard by the inflation surge of 2021 and 2022. Because laws limit how fast they can raise rates, many seem hesitant to lower them now, worried that inflation could spike again.

How to cut the cost of credit card interest

Whatever the cause, carrying a balance on your credit cards can get expensive. Here are three practical ways to reduce how much you pay:

• Pay down your balance. Interest charges only apply when you carry a balance. The more you pay off each month, the less interest you owe.
• Compare your options. Credit card companies spend heavily on advertising, but the best deal is not always the loudest. Look beyond the promos to find cards with lower rates and better terms.
• Improve your credit score. As the Fed study showed, credit risk plays a big role in how much interest you are charged. A higher score could qualify you for significantly lower rates. Get your free credit score now.

Credit card companies set high interest rates to cover various costs, including credit risk and marketing. But while those rates may reflect their bottom line, they impact yours too. If you carry a balance, even small purchases can grow more expensive over time. The good news is, you are not powerless. By paying down balances, comparing card offers, and improving your credit score, you can take control and reduce the amount you spend on credit card interest.

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Disclaimer: The article and information provided here are for informational purposes only and are not intended as a substitute for professional advice

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Six months ago, the Fed interest rate outlook pointed to lower borrowing costs. But that path has shifted. Inflation is rising again, economic growth is slowing, and the Federal Reserve’s latest projections suggest fewer rate cuts — or none at all. That change could make credit cards and other debt more expensive. Knowing how the Fed’s changing course affects you can help you take smarter steps to protect your finances.

Shifting signals from the Fed interest rate outlook

To understand how drastically the outlook for interest rates has changed, it helps to think back to how things were six months ago.

One of the bright spots for the economy was the falling inflation rate. The Consumer Price Index rose by just 2.4% for the year ending September 30, 2024, after having peaked at 9.0% in mid-2022. Since the Federal Reserve had previously cranked up interest rates in response to high inflation, the sharp drop in the inflation rate gave it room to start bringing rates back down.

The Fed made a 50-basis point rate cut in its September meeting. Following that meeting, it released economic projections that showed it intended to make a further 50 basis points worth of cuts by the end of the year and an additional 1% worth of cuts in 2025.

So what has happened since? Well, the only thing that has gone according to plan is that the Fed did follow through and make an additional 50 basis points worth of rate cuts in the final quarter of 2024.

However, inflation has reversed course and started rising again. The year-over-year inflation rate is now 2.8%. Worse, inflation has been running at an annualized rate of 3.8% since the end of September.

There may be worse news to come. Massive government layoffs and an escalating trade war have created an atmosphere of uncertainty about the economy. After meeting in March, the Fed released updated economic projections that showed how its outlook has changed. Since September, the Fed has raised its forecast for 2025 inflation by 0.6% and lowered its forecast for this year’s GDP growth by 0.3%.

Both of those developments could impact the Fed’s rate decisions and, in particular, the rates you pay on credit cards.

Rising credit risk could drive rates higher

The trend in recent months, plus the threat of new tariffs, could mean more upward pressure on prices. That would mean higher inflation.

If that happens, credit card companies will be inclined to keep their rates higher. Part of this is to keep their rates comfortably above the inflation rate. Another part of it is to protect against uncertainty.

The news on tariffs seemingly changes every day. It’s a complicated dynamic. With so many other countries involved, there are several potential sources of additional inflation depending on how they respond to US tariffs.

When in doubt, credit card companies are inclined to keep their rates on the high side to guard against the threat of inflation getting out of control. After all, the law limits how quickly credit card companies can raise their rates. That makes them more likely to respond to inflation risk by getting ahead of a rising price trend when possible.

How to manage borrowing in uncertain times

Inflation is not the only trend that could push prices higher. Consumer defaults are also a factor.

When credit card customers are late or miss payments, card issuers experience losses. This is known as credit risk. Credit card companies raise interest rates to cover that risk, particularly for consumers with lower credit scores or signs of financial instability.

The percentage of credit card balances with payments 90 days or more overdue is now the highest in 13 years. If the economy weakens, as the latest Federal Reserve projections suggest it might, that could get even worse.

With credit risk rising, credit card companies may respond by raising rates. In particular, customers with low credit scores will be most likely to see higher rates because they are deemed the most likely to miss payments.

Reduce or refinance before rates rise

Just as credit card companies have to guard against the possibility of rising inflation and credit risk, so should you. Those things could mean higher interest rates, making borrowing more expensive.

Reducing your credit card balances is the best way to protect against that. Keep borrowing to a minimum, and make every effort to pay off more than you borrow each month. Reducing those balances will reduce the interest you’re charged. As a side benefit, lower balances are good for your credit score. That could shield you somewhat from the higher rates charged to riskier credit card customers.

If you can’t pay down balances immediately, consider refinancing to decrease your interest costs. Personal loans, home equity loans, and balance-transfer credit cards are all possibilities for refinancing high-interest credit card debt. Just be sure to have a solid repayment plan before trying any of these options.

How to stay ahead of changing rates

The Fed’s latest projections suggest consumers may face higher borrowing costs for longer than expected. But you’re not powerless. By paying down debt, refinancing strategically, and improving your credit profile, you can reduce the impact of rising rates and protect your finances through uncertainty.

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