Unbalanced

Americans are racking up debt and struggling to pay it off. The average credit card balance for consumers grew to $6,500 in August, up nearly $100 from a year ago and $70 higher than in July, according to data released Sept. 24 by credit-modeling company VantageScore.

“People have more credit card debt now than we would have expected they would have had on the pre-pandemic trend line,” said Ted Rossman, a senior analyst at Bankrate. “A lot of that has to do with just everything costs more so more people are financing groceries and other essentials. It’s also harder to pay that debt off when it’s a 20% interest rate versus the 16% or so that we were seeing four or five years ago.”

Total household debt topped $18 trillion in the second quarter of this year, $185 billion more than three months ago, according to the Federal Reserve Bank. Home mortgages account for the majority of Americans’ debt, but home equity, credit card, auto, and student loans grew by over $55 billion. Credit cards and auto loans account for more than half the new debt.

“It’s high, but not compared to how over-leveraged people were, say in 2007,” said Allison Schrager, senior fellow at the Manhattan Institute.

But more Americans are buckling under their debt load. Auto loan delinquencies have surpassed pre-­pandemic levels, according to August’s numbers. The percentage of people with lower credit scores defaulting on their auto loans is higher than during the financial crisis of 2008, according to Rossman. It’s not, however, only lower-income consumers who are feeling the squeeze. Americans with better credit ratings are defaulting on auto loans more often than those with poorer credit scores, according to VantageScore’s analysis. Consumers with the highest credit scores (between 781 and 850) defaulted on their loans 300% more this summer than a year ago, the sharpest rise among all credit categories.

The average new car costs nearly $50,000. Car loan balances grew 57% between 2010 and 2025, as new and used car prices and interest rates rose.

“If you’re buying a more expensive vehicle and financing it at a higher cost and you’re getting a 7% or 8% auto loan rate instead of 4% or 5%, there’s a cumulative effect to all of that, and that’s the big issue right now,” Rossman said.

Despite average credit scores for consumers remaining at about 700, well within the range considered good, more Americans are using unsecured credit, such as personal loans and credit cards, to refinance existing debt. Credit card balances that had declined by nearly 20% in 2020 have ballooned by more than 50% since then, climbing steeper than the pre-COVID trend, according to Rossman.

And debt likely will grow during the next few months. Americans plan to spend more than $1,500, on average, on gifts and celebrations for Christmas and holidays this year, according to retail consultants at PwC. Only about 1 in 4 holiday shoppers surveyed by Bankrate said they plan to budget for these expenses, and nearly 30% plan to use a credit card or buy-now, pay-later loan to buy gifts.

Household debt-to-income ratio remains lower than historical norms, but the rising debt against the backdrop of inflation and a softening job market has analysts worried.

“It does show that there’s some vulnerability sort of brewing in the economy,” Schrager said. “More debt is more vulnerability, and it also is a signal that people’s wages maybe aren’t really keeping up with inflation for a lot of the things they buy.”