Entering 2025, more and more Americans are falling behind on their bills as consumer debt continues to skyrocket.
US households are relying more heavily on credit cards in order to meet basic needs and combat the mounting economic pressures — rising inflation, historically high auto loan payments, soaring student loan debt, insufficient retirement savings, and more.
We’ll dive into key factors behind this consumer debt crisis and explore potential debt relief solutions, including personal bankruptcy.
As Inflation Increases, So Does Financial Insecurity
The cost of living in 2024 still remains higher than in previous years, despite the Fed attempting to lower and stabilize inflation at their 2% target rate.
According to an October 2024 Bank of America survey, nearly 45% of Americans perceived themselves as living paycheck to paycheck. Housing, transportation, and utilities are getting more expensive, forcing individuals and families to make difficult choices like maxing out their credit cards or cutting back on essentials.
Groceries alone have gone up by 2.3% compared to this period last year. The US Department of Agriculture (USDA) reported a 2.5% increase for the cost of meats, and a 40% spike for the cost of eggs.
Stronger Reliance on Credit Cards for Basic Needs
With high inflation and stagnant wages, many Americans have turned to credit cards as a lifeline for covering basic needs.
The Federal Reserve Bank of New York reported that credit card debt in the US has now surpassed $1.14 trillion dollars, which is 5.8% higher than the same period last year. It only pushes consumers to persistent debt with the average APRs having now reached a record-high of 22.8%, according to the Federal Reserve Board.
Consequently, Americans are struggling to make minimum payments. The risk of penalties and lower credit score make borrowing even more costly.
Read our blog article on how to clear your debt when you have maxed out credit cards.
The Costly Resurgence of Student Loan Payments
The COVID-19 pause on student loans set interest rates to 0%, which gave borrowers an opportunity to pay student loans interest-free or take a break from paying altogether. However, in September 2023, the 3-year long administrative forbearance came to an end.
Now there are over 46 million borrowers with an outstanding total balance of $1.75 trillion dollars in federal and private student loan debt, paying an estimated $500 per month. This financial strain has borrowers resorting to deferred payments, income-driven repayment plans, or applying for a student loan discharge.
Rainy Day Funds Are Depleting & Disappearing
With a lack of emergency funds comes a lack of financial preparedness.
According to Bankrate’s 2024 annual emergency fund report, 56% of US adults wouldn’t be able to pay for an emergency expense of $1,000 or more. This could be a trip to the emergency room, unexpected car repair, or income to pay for expenses while between jobs.
Financial advisors generally suggest setting aside at least 3 to 6 months of living expenses for life emergencies. Start rebuilding your rainy day fund by opening up a savings account and budgeting your expenses each month.
Seek a Way Out with Debt Relief Programs
If your debt continues to pile up and starts to feel unmanageable, consider bankruptcy, debt consolidation, and other debt relief options.
Chapter 7 bankruptcy wipes out all unsecured debts like credits cards or medical bills in exchange for selling some of your assets, often taking a few months to complete.
Chapter 13 bankruptcy lets you keep your assets and puts you on a reorganization plan to pay back a portion of your debt over a 3-5 year timeframe based on what you can afford.
Yes, your credit scores will be impacted, but they offer a fresh start for what may seem like an inescapable cycle of debt. Also, the stigma of bankruptcy has lessened over the years as many Americans have recognized that it’s more important to regain their financial stability than handle an uphill battle all by themselves.
Safely & Confidently Navigate Bankruptcy with Lakelaw
If you’re struggling with debt, you don’t have to go through this alone. Financial challenges can be overwhelming, but facing them is a true sign of strength, not failure.
At Lakelaw, we will take care of you with the kindness, courtesy, respect, professionalism, and dedication that has been our hallmark since we were founded in 1999.
We’ve been named one of the best bankruptcy law firms in the country by Best Lawyers, Super Lawyers, U.S. News & World Report, Martindale-Hubbell, and Lawdragon. We also have over 50 5-star reviews across Google and Yelp.