Americans are ‘entrenched’ in financial stress

Economic conditions like gas prices well above $4 a gallon, according to AAA estimates, and annual inflation nearing 4%, per the Bureau of Labor Statistics, are pushing Americans’ financial stress levels higher.

The National Foundation for Credit Counseling expects Americans’ economic stress levels to tick back up in the second quarter of the year after a slight fall in the first quarter, according to its quarterly Financial Stress Forecast released on Wednesday. 

The forecast considers data on consumer counseling behavior as well as other broader economic indicators to predict trends in Americans’ financial stability. It rates Americans’ financial stress on a scale of 1 through 10, with 10 as the highest stress level. The rating has remained at or above 6.3 since the end of 2024, compared with a post-pandemic low of 3.5 in 2021. The forecast for the three months ending in June: 6.7.

Americans “are entrenched in financial stress,” Bruce McClary, senior vice president of membership and media relations at NFCC says — the result of elevated prices on top of near-historic highs of consumer debt on credit cards and auto loans.

The nonprofit organization, which provides education and solutions for individuals struggling with their finances, especially debt management, reported a “significant surge” in consumers reaching out for credit counseling, which could be a warning sign for the broader economy, NFCC says. While it’s encouraging to see individuals seeking help before they have run out of options and can’t pay their bills at all, the widespread struggle could be evidence of the overall consumer economy’s health declining, the organization says.

Wednesday’s reading “tells us that the pressure from sustained credit reliance and affordability challenges has reached a tipping point,” Mike Croxson, CEO of NFCC, said in a press release. “Consumers want to manage their obligations responsibly, but their traditional capacity to do so is evaporating under current market conditions.”

David Devaney understands the weight that comes off your shoulders when you get out of debt. The 80-year-old was recovering from a back injury and subsequent surgery in 2020 when he sought help to address his $45,000 in debt, he says.

He racked up the debt on credit cards prior to his injury on normal cost-of-living expenses and occasionally helping his children with education bills or emergency expenses like car repairs, he says. He hadn’t yet missed a payment on the credit card balances he owed, but he knew he would be struggling to keep up as he relearned how to walk after his surgery.

“I called my credit card holders and the banks and everything, and they wouldn’t talk to me”,” Devaney says. “They just said, ‘Oh no, we can’t help you.’ I wasn’t in arrears or anything, and they couldn’t understand why I was calling.”

He was living on around $1,800 a month from Social Security, and though he resided in an affordable area in Arizona at the time, his debt payments were threatening his ability to stay afloat. After his banks declined to help him, Devaney reached out to AARP, which connected him with American Financial Solutions, a member organization of NFCC based in Seattle. The organization negotiated a debt management plan with Devaney’s creditors on his behalf.

High interest rates were the biggest factor preventing Devaney from being able to get out of debt on his own, he says. The credit counseling organization negotiated his minimum debt payments down to $900 a month from around $1,200, he says, and he paid around $35 a month as a fee to the organization. As his balance shrank, so did his minimum required payment, but he kept paying $900 a month and even upped his payments when he was able to start working and had extra money to put toward his debt.

“I found the right agency to [help me] pay it off, and they did a phenomenal job,” he says.

Devaney finished paying off his $45,000 in debt in 2024. He relocated to New Orleans to be closer to his family, and bought a house. He spent around $3,500 on a credit card furnishing the home, he says, but that and his mortgages are his only debts now.

Anyone can enroll their unsecured debt in a debt management plan through NFCC’s partners, McClary says. The credit counseling agencies work with creditors to reduce interest rates for individuals to help them pay down their debts. Enrollees can see their interest rates on debts such as credit cards and personal loans drop from around 25% to 10% or lower, he says.

“The late fees and over-limit fees are stopped when you enroll in the program based on agreements with the creditors, and you get the interest rate reduction, so it saves people thousands of dollars each year just by enrolling those accounts into debt management programs,” he says.

Michael Reynolds, a certified financial planner based in Indiana has recommended similar credit counseling services to his clients in the past and “they tend to be a good option for people who are struggling to get ahead of credit card debt, especially if they have multiple credit cards with high balances and high interest rates,” he says.

“It’s partly psychological and partly optimization, but I’ve seen really good success rates with these programs getting people out of debt,” he adds.

The debt management plans typically come with a fee of $30 to $40 a month, depending on the size of the debt, McClary says, “but the fees can be waived if you are in a situation of extreme hardship or if you blow the poverty line.”

McClary says NFCC has seen a growing number of consumers relying on credit to keep up with the cost of living, but that debt has become unmanageable for many.

“People are falling behind, and they’re sliding off the edge with their credit card payments,” he says. “They’re primarily looking to get that back on track, but they’re also looking for answers about how to get their budget in line with their income, how to return … to some level of affordability that they’re not seeing right now,” he says.

The silver lining, however, is that once people get their debt under control, they’re often able to get the rest of their household budgets in line, McClary says.

“That is a viable option for people who are struggling, and there is a good chance of success for people who enroll, even under these difficult circumstances that we see in the economy,” he says.

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