by Charlene Crowell
As Americans continue to struggle with the rising cost of living, new research shows that mounting household debt is placing an increasingly heavy burden on working families, consuming much of the financial benefit of higher wages.
A report from The Century Foundation, a progressive public policy think tank, finds that debt payments have been rising eight times faster than take-home pay. As a result, workers have lost 52 cents of every additional dollar earned to growing debt obligations.
The findings highlight a troubling reality for millions of Americans: Even when wages increase, higher credit card bills, auto loan payments and other debts can leave families with little additional money to cover everyday expenses.
“You cannot assess whether workers can truly afford to live without accounting for what they owe,” the report states, warning that working families are facing unprecedented levels of household debt.
The financial burden is particularly severe for Black Americans and other communities of color, who often face higher borrowing costs and have fewer financial resources to absorb unexpected expenses.
“In general, people of color pay higher interest rates on credit so that a dollar of debt costs more to service, widening the gap between gross pay and what a worker keeps even more,” the report explains.
According to the research, racial income disparities become even greater when debt obligations are considered. Black workers and other workers of color frequently carry more expensive debt while having less accumulated wealth and savings to provide financial stability.
“The affordability crisis is not race neutral,” the report concludes.
ven among borrowers with excellent credit, significant racial disparities remain. Debt payments consume 13.6% of take-home income for Black workers with super-prime credit, compared with 8.4% for White workers in the same credit category. Similar disparities exist across income levels and credit classifications.
The growing dependence on borrowing also raises concerns about the long-term financial health of American households.
“Spending sustained by rising debt means households are borrowing more to maintain a standard of living their wages no longer support,” the report states. “This is neither sustainable nor a sign of financial health.”
Credit card debt has become especially costly as interest rates have climbed sharply over the past decade. Average credit card interest rates increased from 12.9% in 2013 to 22.8% in 2023, according to figures cited in the report.
Federal Reserve Bank of New York data further illustrates the growing financial pressure. In its quarterly report on household debt and credit, the bank reported that credit card balances increased by $21 billion to $1.26 trillion, while auto loan balances rose by $28 billion to $1.71 trillion.
“New delinquencies for auto loans and credit cards remain at elevated levels, a trend we’ll continue to monitor,” said Joelle Scally, an economic policy adviser at the Federal Reserve Bank of New York.
A September analysis by Experian found that credit card interest rates averaged 19.25%, although individual rates ranged from 7.9% to 34.52%, depending on the lender, type of card and borrower’s credit profile.
Consumers with strong credit generally qualify for lower rates, while those with weaker credit histories frequently face interest charges ranging from 20% to 30%.
Auto loans present another major financial challenge, particularly for households that depend on personal vehicles for transportation to work, school and essential services. Experian reported that the average monthly payment for a new vehicle reached $765 at midyear, compared with $542 for a used vehicle.
Borrowing costs vary dramatically by credit score. Used-car buyers with deep-subprime credit scores faced average interest rates of 21.62%, more than three times the 6.29% average charged to super-prime borrowers.
These differences can add thousands of dollars to the cost of vehicle ownership, making it more difficult for lower-income households to build savings or recover from financial emergencies.
Research from the Federal Reserve Bank of Philadelphia also indicates that subprime borrowers account for a disproportionate share of seriously delinquent auto loans, reflecting growing financial strain among consumers already facing high borrowing costs.
For Black households, the combination of higher interest rates, persistent income disparities and lower levels of accumulated wealth can create a cycle in which debt payments consume money that might otherwise support home ownership, education, retirement savings or other opportunities for economic advancement.
The Century Foundation argues that addressing the problem will require more than encouraging consumers to borrow responsibly. Its researchers call for broader economic reforms that reduce household debt burdens while improving wages and financial protections.
“Rising household debt is a symptom of broader failures within our economy,” the report said.
Among its recommendations are expanding debt relief, raising wages, strengthening collective bargaining rights, cracking down on predatory lending practices and increasing public investment in services that reduce household expenses.
Without such changes, researchers warn, rising wages alone may do little to improve the financial circumstances of millions of American workers whose earnings are increasingly consumed by debt.
(Charlene Crowell is a senior fellow with the Center for Responsible Lending. She can be reached at <Charlene.crowell@responsiblelending.org>.)
