June’s Fed meeting came and went without any change in the Federal funds rate. The decision reflects a growing problem: the economic indicators the Fed relies on are increasingly pointing in opposite directions.

Slowing economic growth and rising unemployment typically call for lower rates, but renewed inflation concerns are pulling the other way. This tug-of-war is leaving 2025 interest rates in limbo.

The Fed expects economic signals to move further apart

After the Federal Open Market Committee met on June 17 and 18, it released updated projections showing greater conflict between key economic indicators.

On one side, the Fed lowered its expectations for GDP growth and raised its unemployment forecast. That indicates it expects the economy to weaken more than previously thought.

At the same time, it raised projections for inflation in 2025 and the two years that follow. That means it sees price pressures remaining higher than hoped.

The Fed tries to balance two main goals: encouraging employment and limiting inflation. Lower interest rates can support job growth, while higher rates are often used to control inflation. Because those two responses are at odds with each other, tension between the Fed’s goals is not new. But now that tension appears to be growing.

Interest rates remain unchanged

At the end of its June meeting, the Fed announced it was holding the Federal funds rate steady at a target range of 4.25% to 4.5%.

This decision disappointed some, including President Trump, who has repeatedly called for cuts. However, Fed Chair Jerome Powell does not act alone. The rate-setting committee voted unanimously to leave rates unchanged, reflecting broad agreement that the economic situation does not support a move right now.

As recently as September, the Fed expected to lower rates to 3.4% by the end of this year. Instead, its latest projection shows a year-end rate of 3.9%, which is half a percentage point higher. It has also raised its rate expectations for 2026 and 2027.

Inflation uncertainty continues to weigh heavily on rate decisions. The Fed is not raising rates at this point, but it does not believe conditions justify lowering them either.

Inflation concerns have not gone away

One reason the Fed is drawing criticism for holding off on rate cuts is that inflation has remained relatively calm in recent months. Inflation remained calm with modest monthly price increases through much of 2024.

However, the Fed bases its decisions on where the economy is going, not just where it is now. Tariffs that have been announced are not yet fully reflected in prices. There are delays between when tariffs take effect and when their impact reaches consumers. Retailers often have existing stock to sell through first.

On top of that, ongoing conflict in the Middle East creates the possibility of rising oil prices, which can drive up costs across many sectors.

The Fed also considers how inflation can build on itself. Higher import prices can lead to domestic price increases. Companies may raise prices due to rising input costs, and employees may push for higher wages in response. This feedback loop can create lasting inflation that is harder to reverse.

To provide some perspective, the current rate is lower than the historical average. Over the past 50 years, the Federal funds rate has averaged 4.69%. Today, it sits at 4.33%.

Since August of last year, the Fed has lowered rates by a full percentage point, from 5.33% to 4.33%. So while it has not made deep or frequent cuts in 2025, it has already moved rates below the long-term norm.

The criticism is not that the Fed has done nothing. It is that it has not gone as far as some would prefer.

Consumer interest rates often move independently

From a consumer perspective, the Fed’s decisions may not matter as much as headlines suggest. Even when the Fed does cut rates, the impact on what consumers actually pay can be small.

For example, between mid-2019 and early 2020, the Fed cut rates by 2.25%. During that same period, the average interest rate on credit card balances dropped by only 0.53%.

In the second half of last year, the Fed cut rates by 1.0%, but 30-year mortgage rates fell by just 0.01%.

That is because consumer rates do not track the Federal funds rate exactly. Both are influenced by broader market factors, including credit risk and inflation expectations.

As the economy slows, lenders tend to raise rates to account for higher risk, especially on unsecured debt like credit cards. For borrowers with lower credit scores, those increases can be even steeper. Credit conditions may tighten, making it more difficult or expensive for some consumers to access credit at all.

Meanwhile, long-term mortgage rates are often more sensitive to inflation expectations than to short-term interest rate moves.

Broader changes are needed for real consumer relief

The Fed’s projections suggest that concerns about inflation are growing while the economic outlook is weakening. That is a difficult environment for lowering interest rates.

To see meaningful improvement in borrowing costs, several things would need to happen. A stronger economy could reduce credit risk. A shift in trade policy or global tensions could ease inflation pressure.

Until those conditions change, the Fed may have limited ability to affect consumer borrowing costs. The bigger issue is not whether the Fed chooses to cut rates. It is whether the economy provides the conditions that allow those cuts to make a difference.

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Increased financial stress for households

The U.S. job market is showing signs of strain. In May 2025, the Bureau of Labor Statistics (BLS) reported that the economy added 139,000 jobs, a drop from the previous month and well below the monthly average gain for the past year. Earlier estimates for March and April were also revised downward, suggesting a broader slowdown in employment growth.

Not everyone will feel the effects of a slowing job market, but it can lead to longer job searches, more competition, and slower wage growth in some industries. These changes may create challenges for some households trying to maintain financial stability.

Does reduced income affect your credit score?

Nothing happens to your credit score as a direct result of reduced income. However, income disruption, whether temporary or long-term, can lead to financial strain. For some, that may make it more difficult to stay current on payments, particularly on credit cards, loans, or other recurring obligations. Late payments are commonly reported to credit bureaus and may negatively impact credit scores.

Others may continue making payments but rely more heavily on credit to cover expenses. That can increase their credit utilization ratio, which may also influence credit scores. Even individuals who stay current on bills could see changes to their score if balances grow significantly or if lenders reduce available credit in response to economic conditions.

Remember that missed payments are one of the most common causes of credit score damage. Managing your budget carefully and making at least the minimum payments on time can help you avoid negative marks like delinquencies or collections.

Protect your credit in an uncertain job market

No one can fully predict how the economy will evolve or how it may affect your credit, but it is always wise to adopt good personal finance and credit management practices.

• Consider building or rebuilding an emergency fund. Having savings to cover a few months of essential expenses can reduce reliance on credit during income disruptions.
• Try to make at least the minimum payments on all accounts. Maintaining a positive payment history is one of the most important factors in credit health.
• Communicate with creditors early if financial strain is expected. Some lenders offer hardship options that could temporarily pause payments or reduce fees.
• Monitor your credit regularly. This may alert you to changes in your credit report or score, giving you time to respond.

Stay alert to economic changes

Economic shifts can affect credit indirectly. If interest rates change or lending standards tighten, consumers may find it harder to access new credit or secure favorable terms. Tracking trends in your own industry or region may also help you plan ahead, especially if layoffs become more common.

Resources like the Federal Reserve Bank of New York’s Survey of Consumer Expectations offer helpful insight into how people view the job market and inflation outlook.

Some households may be eligible for support through state or federal programs if the employment outlook worsens. Being aware of those options in advance could help reduce stress and avoid late payments in the event of sudden changes. If you are experiencing financial strain, these federal resources may help:

• Hardship help for mortgages and rent
  The Consumer Financial Protection Bureau provides guidance on forbearance, rental assistance, and how to talk to your loan servicer.
• Unemployment benefits
  If you lose your job or have your hours significantly reduced, you may qualify for state-administered unemployment benefits.
• Job training and reemployment support
  The Department of Labor’s CareerOneStop site connects people to local training, career counseling, and job search help.

How good credit habits can help when the job market slows

Credit scores reflect many aspects of financial behavior, including how consistently payments are made and how much credit is being used. The broader economy plays a role in shaping opportunities and risks, but strong personal habits can help you maintain stable credit even during difficult periods.

A slowing job market might bring added pressure, but it does not automatically lead to credit problems. A proactive approach to managing your personal finances through budgeting, planning, and regular credit monitoring can help avert any negative impact and ensure you stay in control of financial outcomes.

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Think you’re doing fine financially? The Fed’s new survey says maybe not

Many Americans believe their finances are in good shape, but new data from the Federal Reserve suggests that confidence may be misplaced.

A closer look at the survey results offers a valuable reality check. It might prompt you to reassess how secure your finances really are and what steps you can take to improve them.

Only 51% of Americans are living within their means

One of the most striking findings from the survey is that only 51 percent of U.S. households reported spending less money than they earned in the past month. Another 30 percent said their spending matched their income. That leaves 19 percent who spent more than they brought in.

As concerning as that sounds, the 51 percent figure is an improvement from the previous year, when just 48 percent of households lived within their means. But even with that modest progress, the bigger picture remains troubling.

Spending exactly what you earn leaves no margin for error. One unexpected expense could push you into debt or force you to dip into savings. And for the 19 percent spending beyond their income, the situation is even more serious. They are either using up savings or relying on debt. Neither approach is sustainable over time.

Income plays a major role. While 66 percent of households earning over $100,000 said they were spending less than they earned, the national average is pulled down by those below that threshold. For households making under $50,000, fewer than 40 percent are living within their means.

How to close the gap

If your budget has no cushion for emergencies or future needs, it may be time for some tough decisions.

• Reevaluate your expenses. Somewhere along the way, spending has outpaced income. It is better to make changes now than to wait until circumstances force your hand.
• Find ways to earn more. Asking for a raise, switching jobs, or picking up extra work can be difficult, but the effort may provide the financial breathing room you need.

Perception versus reality

The Federal Reserve also found a disconnect between how people feel about their finances and what the numbers suggest.

According to the survey, 39 percent of respondents said they were “doing okay” financially. Another 34 percent said they were “living comfortably.”

That adds up to 73 percent who think they are in reasonably good shape. But if only 51 percent spend less than they earn, a significant portion may overestimate their financial health.

Access to credit can create the illusion of stability. As long as bills are being paid, some people assume they are managing, even if they are relying on borrowing. However, continued use of credit to cover basic expenses can lead to rising debt and declining credit scores. A weaker credit profile may limit access to affordable loans, housing, and other financial opportunities. This may help explain why household debt has continued to rise in recent years.

Time for a financial reality check

The risks are clear. Debt must eventually be repaid. As balances grow, interest costs rise, placing an even tighter squeeze on future budgets. To get a clearer picture of where you stand, consider asking yourself:

• When will you be able to stop borrowing?
• How will you repay the debt you already have?
• Can you afford future milestones such as buying a home, covering college costs, or retiring?

Answering these questions honestly may be uncomfortable, but it is a crucial first step toward getting back on track.

How households are falling short

The survey also uncovered other warning signs among U.S. households:

• Retirement savings are falling behind. Only 35 percent of respondents said they were on track with retirement savings. That means nearly two-thirds may be headed toward a reduced lifestyle later in life. Reviewing your retirement plan once a year and increasing contributions when possible can help you stay on track.
• Emergency savings are lacking. Just 55 percent of households said they had enough savings to cover three months of expenses. Among those earning less than $50,000, that number drops below 40 percent. Having emergency savings can protect you from needing to borrow in a crisis and can reduce the long-term financial impact of unexpected setbacks.
• Some homeowners are uninsured. Seven percent of homeowners reported having no homeowner’s insurance. This puts their most valuable asset at risk. If insurance feels unaffordable, it may be worth reassessing your housing situation to ensure it aligns with your financial reality.

Taking the first step toward stability

Stepping away from financial risk often requires difficult choices. But those choices are likely to be far easier than facing a future filled with mounting debt and uncertainty.

If you are struggling to find a way forward, consider reaching out for help. Nonprofit credit counselors, financial advisors, or trusted digital tools can help you assess your options and make a plan.

It is never too early to act, and recognizing the problem is often the most important step toward solving it.

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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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Living with debt can take a toll on more than your bank account. It can create ongoing stress, keep you up at night, and make it harder to plan for the future. But even if your situation feels overwhelming, there are ways to reduce the pressure.

These 10 practical steps may help you get debt under control — and in the process, bring more peace of mind. As a bonus, some of these changes might also support better credit over time.

1. Make a complete list of what you owe

It’s hard to tackle debt when it’s unclear where you stand. Start by listing every debt — credit cards, loans, overdue bills — along with balances, interest rates, and minimum payments. Having everything in one place can reduce anxiety and help you see what needs attention first.

2. Create a realistic monthly budget

A workable budget can relieve stress by giving you more control. Track your spending and look for places to cut back, even temporarily — like unused subscriptions or frequent takeout. Freeing up even a small amount may help you make meaningful progress.

3. Prioritize high-interest debt

Tackling the highest-interest debt first (known as the avalanche method) might reduce the interest you pay overall. Over time, that could ease financial strain and help your payments go further.

4. Consider the snowball method for momentum

Prefer a quick win? Paying off the smallest balance first (the snowball method) can create a sense of accomplishment and build motivation. Either approach could reduce stress — choose the one that fits your mindset and money habits.

5. Automate your payments

Late payments can lead to fees, stress, and potential credit harm. Setting up automatic payments for at least the minimum amount can help you stay on track and avoid last-minute scrambles.

6. Explore refinancing options

If high interest makes it hard to keep up, refinancing might help. Balance transfer credit cards, personal loans, or home equity loans could offer lower rates, reducing pressure in the short term. Just be sure you understand the terms and have a repayment plan. The Federal Trade Commission’s (FTC) Coping With Debt guide outlines several options.

7. Contact lenders before you fall behind

Some may offer hardship programs, deferments, or adjusted payment plans. For more information, the Federal Trade Commission’s (FTC) guide on How To Get Out of Debt offers helpful strategies and considerations.

8. Use windfalls wisely

Unexpected money — like tax refunds, bonuses, or gifts — can be an opportunity. Applying it to debt could lower your balance, reduce interest, and give you breathing room. Even small lump sums might make a difference.

9. Monitor your credit regularly

Checking your credit may help you spot problems early and track progress over time. It might not relieve stress immediately, but learning how credit scores work, staying informed can give you a sense of control, and over time, improved credit may open the door to lower rates. You can also explore FTC resources on credit and debt to understand better how credit works.

10. Avoid adding new debt

If you’re trying to regain control, avoiding new debt is key. That might mean pausing large purchases or being mindful about credit card use. Keeping balances low can help reduce stress and benefit your credit later.

How to stay ahead of changing rates

Rising interest rates and economic uncertainty can make it harder to pay down debt and easier to feel overwhelmed. But you have options. By organizing your finances, trimming interest costs, and building healthy habits, you may reduce financial stress and set yourself up for stronger credit in the future.

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Swiping a card to cover everyday expenses can feel harmless—even helpful. But when credit card convenience quietly becomes a financial habit, it can lead to mounting balances, rising interest costs, and long-term consequences.

This gradual shift, known as credit creep, often goes unnoticed until the damage is done. A few purchases here and there, a few minimum payments later—and suddenly, you’re in a cycle that feels impossible to break.

That’s why it’s important to have a complete view of your credit score and what influences it—how your credit usage, payment history, and debt levels all work together to shape your overall financial health.

The slow slide into credit dependency

Credit cards were designed for short-term borrowing and convenience—not long-term survival. Yet more Americans are relying on them to pay for essentials like groceries, gas, and bills.

A 2024 report from the Federal Reserve Bank of New York showed credit card balances reaching a record $1.13 trillion. At the same time, delinquency rates are rising—especially among younger adults and lower-income households.

Inflation and stagnant wages contribute to credit creep, but so does a subtle behavioral shift. What starts as temporary help can slowly evolve into a financial dependency.

Minimum payments, maximum problems

Making only the minimum payment keeps your account current but does little to reduce your balance, masking the severity of your debt.

Minimum payments primarily cover interest charges, allowing the principal balance to persist for years. For example, with an average credit card interest rate of approximately 22.60% , a $5,000 balance could take over 17 years to repay if only minimum payments are made, resulting in substantial interest paid over time.

This prolonged repayment period can lead to debt fatigue, where the lack of noticeable progress undermines financial confidence and decision-making.

How credit card convenience affects your credit

One of the biggest issues with credit card convenience is rising credit utilization—the ratio of your card balances to credit limits. Higher utilization often means a lower credit score.

Even if you’re making on-time payments, maxed-out cards can damage your credit profile. Missed payments make things worse and can stay on your credit report for up to seven years.

To monitor changes in your score and catch issues early, consider using Credit Sesame’s free credit monitoring tools.

The illusion of control

Credit creep happens quietly. Swiping feels easier than handing over cash, and the real cost—interest—doesn’t show up until later. That makes it easy to underestimate how much you’re borrowing.

You may feel in control, but your balance says otherwise. As interest builds and payments remain flat, your financial flexibility starts to vanish.

Signs credit card convenience is becoming a problem

If you’re not sure whether credit creep is affecting you, here are a few red flags:

• Using credit cards to cover everyday essentials.
• Feeling nervous about checking your balance.
• Paying only the minimum each month.
• Shuffling debt between cards or relying on cash advances.
• Losing track of how much you owe across multiple accounts.

You can get a full view of your credit activity by checking your report at AnnualCreditReport.com.

Strategies to reverse credit creep

If you’re starting to feel trapped, you’re not alone—and there are ways to regain control:

• Press pause on new charges. Use cash or debit while you reassess your budget.
• Build a bare-bones budget. Prioritize essentials and redirect extra funds to pay down debt.
• Earn extra income. A temporary side hustle can help you make larger payments.
• Refinance high-interest debt. Balance transfer cards or personal loans may lower your rate.
• Negotiate with your card issuer. Ask for a lower rate or hardship assistance if needed.

Why credit card debt hits harder over time

The longer debt lingers, the more it costs. High-interest cards can quietly add hundreds—or even thousands—of dollars in finance charges over time.

This growing burden affects more than your wallet. It can make it harder to qualify for lower-cost credit, increase insurance premiums, or affect housing opportunities.

Don’t let convenience become a crisis

Credit cards can be useful tools—but when convenience turns into dependency, the consequences grow quickly. Credit creep is a real risk, especially in today’s economy, and it often leads to financial strain before people even realize it.

Recognizing the signs early and taking proactive steps can help you avoid a demoralizing debt disaster—and reclaim your financial freedom.

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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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Consumers are much less confident than they were a couple of months ago. How they act on their growing fears could determine the economy’s direction.

Every month, the University of Michigan publishes an Index of Consumer Sentiment. As the name suggests, this measures how consumers feel about the economy and its impact on their finances. Economists and investors closely watch this index to see whether consumers are confident, fearful, or somewhere in between.

The latest reading of the Index of Consumer Sentiment shows a sharp drop in confidence in February. When that happens, one concern is that losing confidence could hurt the economy, as nervous consumers spend less.

While that’s a valid concern, to some extent, the recent loss of confidence could be a healthy reality check for consumers. This may mean more consumers realize they must change their borrowing and spending habits.

Why consumer confidence is falling fast

The Index of Consumer Sentiment fell by 9.76% in February, following a 3.11% decline in January. Overall, the index is down by 15.86% from a year earlier.

So, what’s giving consumers the chills?

For one thing, concern about inflation has come back with a vengeance. The University of Michigan survey shows consumers expect prices to rise by 4.3% over the next year. That’s a full percent from January 2025 and a 1.7% higher inflation rate than the 2.6% consumers expected last November 2024.

To a large extent, this can be attributed to the anticipated impact of new tariffs. What’s harder to measure is the heightened uncertainty about government policies. The full extent of tariffs, layoffs, and budget cuts has yet to be made clear, and it will take some time for the impact to set in.

Will these sudden changes cause inflation? A recession? Or will it all turn out to be for the best?

Nobody knows yet. The problem is that uncertainty paralyzes decision-making. Whether it’s consumers considering a major purchase or businesses deciding whether to hire and invest, uncertainty often forces people to the sidelines as they wait and see how the game is being played.

How inflation and uncertainty are shaping consumer decisions

Given the nature of tariffs, concern about inflation is understandable. With significant policy changes being implemented at dizzying speed, uncertainty is also natural.

In this daunting environment, consumers would do well to focus on what they can control.

The latest Survey of Consumer Expectations from the Federal Reserve Bank of New York found that as of January 2025, consumers expected their spending over the next year to grow faster than their incomes and the inflation rate.

Perhaps the plunge in consumer confidence in February 2025 will put a damper on those spending plans. That might not be such a bad thing.

Over the past four years, consumer debt has risen by 23.9%, with credit card debt leading the way. By increasing spending faster than their incomes are growing and faster than necessary to keep up with inflation, many consumers have been living beyond their means.

Perhaps a little less consumer confidence will cause some to revisit their spending habits. In the short term, this could mean an economic slowdown – and possibly even a recession. However, if it leads to more responsible borrowing habits, it could put the economy on a more solid foundation in the long run.

4 financial steps to stay secure

As the consumer confidence survey suggests, economic uncertainty is on the rise. With inflation concerns and a potential slowdown ahead, focusing on what you can control may help you stay financially stable, regardless of where the economy heads next.

• Reassess your spending habits. Ensuring that expenses don’t exceed take-home pay can provide more financial flexibility. Finding ways to cut back on nonessential spending may also make it easier to build savings over time.
• Lower borrowing costs. Carrying a credit card balance can become costly, especially with high interest rates. When possible, paying off balances in full each month may help avoid added interest. Refinancing through a personal loan or a balance transfer credit card could offer a more affordable repayment option for those with high-interest debt.
• Strengthen job security. Government layoffs and economic shifts can make the job market more competitive. Keeping skills up to date, maintaining strong job performance, and considering how an employer’s business model may hold up in this environment could be beneficial. Those in industries heavily reliant on government contracts may want to assess potential risks.
• Optimize your credit score. A strong credit score can help maintain access to credit and secure better interest rates. With lending standards tightening and inflation keeping rates high, improving credit health may provide financial advantages in the long run.

Rather than letting economic uncertainty create stress, it may be helpful to use it as motivation to strengthen financial habits. Adjusting spending, managing debt, and maintaining financial stability could help turn falling consumer confidence into an opportunity for long-term security.

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Government reports on consumer borrowing are starting to feel like the boy who cried wolf. Every quarter brings another warning—household debt is rising, borrowing is surging—yet the economy keeps moving, and people keep spending.

It’s easy to dismiss record-breaking debt as just business as usual. But in the fable, the boy was ignored one too many times … and in the end, the wolf was real.

Another quarter, another new record for rising consumer debt

The Federal Reserve Bank of New York recently released its Household Debt and Credit Report for the fourth quarter of 2024. The report showed that total household debt had reached a new high again.

Total household debt rose by $93 billion during the quarter to $18.036 trillion. This is the first time household debt has exceeded the $18 trillion mark.

If that didn’t make many headlines, don’t be surprised. It’s not big news for household debt to set a new record. It has now done so for 18 straight calendar quarters. That’s four-and-a-half years’ worth, during which time household debt has risen by $3.77 trillion.

How much debt is too much?

With household debt rising so consistently, it begs the question of how much consumer debt is too much.

The answer to that may not be a specific dollar figure. It’s more a matter of how well people are handling that debt. The disturbing thing is that Americans increasingly struggle with their debt payments.

The percentage of debt that became 90 days or more overdue increased in the fourth quarter for credit cards, mortgages, car loans, and HELOCs. Of the major loan categories tracked by the New York Fed, only student loans saw the transition into serious delinquency slow in the fourth quarter.

The biggest problem with payment delinquency is in credit card debt. The percentage of credit card balances that are 90 days or more overdue is now the highest since the end of 2011.

Back then, the economy was still recovering from the Great Recession. Now, the economy has benefitted from 11 straight quarters of economic growth and 49 consecutive months of job growth. If people have such trouble paying their credit card bills now, imagine what would happen in a recession.

Debt is getting more expensive

Not only is the total amount of household debt rising, but consumers took on more of the most expensive forms of debt last quarter.

Overall, mortgage debt represents the most significant type of consumer debt. It comprises $12.6 trillion of the $18 billion total. This is a relatively good type of debt to have – mortgage rates are generally low compared to other forms of consumer debt, and since this debt is used to purchase property, it is offset by an asset.

However, the largest debt consumers took on last quarter was credit card debt. Credit card debt rose by $45 billion in the fourth quarter. That’s far more than the $11 billion in mortgage debt added during the same period and nearly half of the total addition to consumer debt.

This is a problem because, with an average interest rate of nearly 23%, credit card debt is a costly form of consumer debt. Also, because it’s unsecured, credit card debt is often not offset by purchasing an asset with lasting value.

In short, credit card debt makes a hefty addition to consumer debt burdens. So, opting for more of this type of debt than any other was another negative trend in the fourth quarter of 2024.

3 things consumers need to do

National statistics represent what consumers as a group are doing. However, individuals can make their own choices about how they handle their debt.

Given recent debt trends, here are three choices you should consider:

1. Refinance high-interest debt. With its high interest rates, credit card debt is a prime candidate for refinancing. You can generally get a much lower rate from a personal loan or use a balance-transfer credit card if you can pay off your balance within the introductory rate period.
2. Start debt levels heading in the right direction. Large debt balances generally can’t be paid off all at once. Your first goal should be to reverse the direction of the trend – from rising balances to falling ones. If you get the trend heading in the right direction, eventually, you’ll reach your goal.
3. Protect your credit score to maintain access to affordable credit. As payment delinquencies and defaults rise, lenders are getting stricter about who they’ll give credit to. Working on your credit score can help you retain access to credit in this environment and qualify you for better interest rates.

The Household Debt and Credit Report didn’t offer much good news. When debt keeps climbing, and delinquencies rise, it’s a signal to take control. Now is the time to break the cycle and move in a better financial direction.

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The post Rising consumer debt keeps setting records, but can borrowers keep up? appeared first on Credit Sesame.