Americans are increasingly struggling with credit card debt and other loans, and consumers are paying more for basic banking services like A.T.M. withdrawals, recent financial research finds.
Interest and fees on credit card accounts carrying balances rose about 25 percent in 2023 from the year before, according to a report published this month by the Financial Health Network, a nonprofit focused on financial stability. And 42 percent of households carrying balances on credit cards reported that their overall debt level was “unmanageable,” up from 38 percent in 2022, the network found.
“The uptick raises warning signs in our minds,” said Hannah Gdalman, the nonprofit’s manager of financial services solutions. More borrowers have been falling behind on credit card payments, especially those who have maxed out spending on their cards, according to the Federal Reserve Bank of New York. The average rate on cards charging interest is nearly 23 percent, so balances can balloon quickly.
Making payments on credit cards as well as car loans, student loans and other installment loans has been increasingly challenging for consumers, the financial network found. People whom the network considers “financially vulnerable” — a classification of individuals who report that they struggle to pay bills on time, save for emergency expenses and manage debt — account for an outsize portion of the spending on interest and fees associated with credit products, the report found. (The analysis, which the network publishes annually, is based on public data and a nationally representative survey of consumers.)
Separately, the National Foundation for Credit Counseling, a nonprofit whose members help people manage credit card and other unsecured debt, warned of a rise in financial distress among consumers, based on data from its counseling centers. The foundation’s latest stress forecast, an index that aims to predict how likely people are to make their loan and credit card payments, had declined since the end of last year, suggesting people were feeling more confident about meeting their obligations, but it is projected to rise about 10 percent in the third quarter.
Bruce McClary, the foundation’s spokesman, said that while inflation had cooled, prices for some basic goods remained high, leading strapped consumers to turn to credit to meet their needs. “People still struggle,” he said.
There are steps you can take if your card debt is ballooning. First, try calling your bank and asking it to lower the interest rate on your card so your balance doesn’t grow as quickly, said Todd Christensen, director of education at Money Fit, a nonprofit credit counseling agency.
If you still have good credit, you could apply for a card with a 0 percent transfer offer and move the debt to the new account, said Alvin Carlos, a financial planner in Washington. But be sure you can pay it off during the promotional period, or you’ll end up paying double-digit interest again when it expires. A personal loan with a lower interest rate — say, 12 to 15 percent — is another alternative.
If those options won’t work, you could check the rates on your own credit cards — most people have several — and transfer your debt onto the one with the lowest interest rate, to stem the monthly finance charges, said Brandy Baxter, a financial counselor in Dallas.
Often, people simply don’t have enough income to cover their living expenses, so they turn to credit cards to relieve the financial squeeze, Ms. Baxter said. “But it actually makes the pressure greater,” she said, by piling on double-digit interest.
Ms. Baxter reviews expenses with her clients, to see if there is any extra cash that could go to paying down their debt, she said. If not, she would suggest they consider ways to increase their income, at least temporarily, by seeking more hours at work or taking on a side job, and putting the extra money toward card balances.
Gregg Murset, a financial planner and chief executive of BusyKid, a financial app for children, said some people had adequate income but racked up card debt from spending as if they earned much more. “Don’t act like you’re rich if you’re not,” he said.
That may mean taking more modest vacations or cutting back on dining at high-end restaurants. He also urged parents to consider whether they should still pay for their adult children’s expenses, such as a cellphone bill or car insurance, rather than putting that money toward reducing their own debt.
“Stop paying for other people’s stuff,” Mr. Murset said.
Daphne Jordan, chair of the National Association of Personal Financial Advisors, a group for fee-only financial planners, said she recommended using what she called the “avalanche” method of debt reduction. That involves identifying the credit card with the highest interest rate and putting extra cash toward that balance until it’s paid in full. At the same time, keep making more than the minimum payments on your other cards to keep those balances from mushrooming, she said.
When the card with the highest interest rate is paid off, put the money you were paying toward the one with the next-highest rate, and so on. A free online tool, PowerPay from the Utah State University Extension, can help you get started, she said.
In addition to debt, bank fees may be adding to consumers’ financial burden. Household spending on A.T.M. fees rose an estimated 25 percent from 2020 to 2023, the Financial Health Network found, while spending on account maintenance fees — monthly service charges for having an account — was up about 20 percent.
The financial site Bankrate reported this week that the cost of using an out-of-network A.T.M. climbed to an average of nearly $5 per transaction, the highest amount since the site began tracking the fees in 1998. The total cost reflects charges from the customer’s own bank as well as fees from the bank that owns the A.T.M. (The report included 245 banks.)
Fewer people are using out-of-network A.T.M.s to get cash, said Greg McBride, chief financial analyst at Bankrate, so banks are charging higher fees to compensate.
Most banks have apps showing the location of their A.T.M.s, so you can see if there’s one near you when you’re traveling. If you bank at a local institution with limited A.T.M.s, find out if it participates in a national fee-free network, like Allpoint, Mr. McBride said. Another option: Get cash back with no fee when paying with your debit card in stores.
Here are some questions and answers about managing debt and banking fees:
Where can I get help managing my credit card debt?
If you need support, consider seeking help from a nonprofit credit counseling agency. (You can search for one on the National Foundation for Credit Counseling website). These groups can help arrange a debt-management plan with your creditors, lowering your interest rate in exchange for an agreement to pay off your debt, typically in four to five years. (The counseling agency may charge a fee to manage the plan, but it can be reduced or waived if it would be a hardship.)
Seek help early — as soon as you start struggling to make more than the minimum required payments on your cards — to maximize your options, Mr. McClary said.
What apps can help me avoid overspending?
Mint, the popular free budgeting app, has shut down, but there are alternatives, albeit with subscription fees. Mr. Carlos recommends Monarch Money, which has an annual fee of about $100 (higher if you pay monthly). For more options, check out a list from the New York Times columnist Ron Lieber.
What’s happening with bank overdraft fees?
One bright spot for bank customers in recent years has been a decline in overdraft fees, which are charged when a bank honors a debit or check even though the account lacks enough money. Some banks, under pressure from regulators, have eliminated the fees. Bankrate, however, found that overdraft fees had begun rising again, by just under 2 percent, to about $27 on average. If you have direct deposit set up for your paycheck, some banks give you early access to the funds to cover overdrafts within two days of the deposit, Mr. McBride said. Ask your bank if that’s an option.