In the United States, affluence has long been a theater of prosperity staged through credit. From the postwar boom to the age of fintech, consumer debt has been the scaffolding behind the illusion. In the mid-20th century, installment plans and revolving credit began to allow working-class households achieve the modern mass produced luxuries of the affluent. The refrigerator, the car, the suburban home were all symbols of success and were often bought not with savings but with borrowed money. Debt became a tool not just for consumption but for identity, a way to participate in the American dream even when the math didn’t add up.
By the 1980s, deregulation and financial innovation accelerated this trend. Credit cards proliferated, student loans ballooned, and mortgages became speculative instruments. The economy shifted from producing goods to producing debt. Americans learned to live beyond their means, not out of recklessness but necessity. Wages stagnated, but expectations did not. To appear solvent was to be solvent. The result is a society where millions drive luxury cars and live in spacious homes while carrying negative net worth. The performance continues because the alternative of admitting the American dream is broken may be too painful.
David Graeber might have argued that this is not simply economic mismanagement but a form of social control. Debt disciplines behavior, enforces conformity, and masks inequality. It creates a population that looks wealthy but is structurally precarious, always one missed payment away from collapse. The veneer of affluence is maintained not by productivity but by the promise of future repayment and a promise that, for many, will never be fulfilled. In this sense, consumer debt is not just a financial instrument but a moral one, shaping how Americans see themselves and each other in a system that rewards appearance over substance.
There is growing evidence that the United States has been experiencing a silent recession, particularly at the household level, for at least two years. While headline economic indicators like GDP and corporate earnings have remained positive, consumer sentiment has consistently lagged behind, with surveys showing elevated financial anxiety and pessimism.
Put simply, U.S. consumers are not just broke, they are broke and in significant debt. Many ask, “what is the pin that’s going to pop this bubble?” There is evidence that it may be a consumer credit crisis. Job growth is flat with companies not hiring or firing. The impact of interest rates, inflation and tariffs has lagged due to the illusion of stability provided by consumer credit. The liquidity from stimulus and the subsequent extension of liquidity through credit has finally come to an end.
According to TransUnion’s Q2 2025 Consumer Pulse Study, 27 percent of Americans report feeling pessimistic about their financial future, the highest level since 2021. This disconnect is further supported by rising credit card delinquencies, surging auto loan defaults, and increased reliance on buy now pay later services for essentials like groceries. Inflation has eroded purchasing power, and real household income growth has stagnated for lower-income groups since 2019. Despite strong labor market data, many households are struggling with rising housing costs, student loan repayments, and shrinking access to credit. These conditions mirror past periods, such as the lead-up to the 2008 crisis, where surface-level economic strength masked deep consumer distress until the market corrected sharply. The current divergence between corporate performance and household financial health suggests that the recession is already underway for millions of Americans, even if it has not yet been officially declared.
The technical definition of a recession is a significant decline in economic activity that lasts more than a few months and is visible across key indicators such as GDP, income, employment, industrial production, and retail sales. In the United States, a recession is officially declared by the National Bureau of Economic Research, which looks for a broad and sustained downturn in economic performance. While a common rule of thumb is two consecutive quarters of negative GDP growth, the NBER considers a wider range of data to determine the start and end of a recession.
Since the end of COVID-era stimulus, consumer finances have deteriorated sharply. Stimulus checks temporarily masked deep vulnerabilities, allowing subprime borrowers to appear creditworthy, pay down debt, and boost FICO scores. Many used the funds to buy expensive cars or flip homes, but once the money dried up, they reverted to financial distress. Auto loans ballooned, with one in five new borrowers now paying over $1,000 monthly. Lenders are increasingly modifying loans rather than repossessing vehicles, yet refinancing terms have stretched to 84 months with interest rates exceeding 22 percent.
Credit card delinquencies have nearly doubled since 2021, and Q2 2025 saw over 2.4 auto million repossession assignments, though recovery rates remain low due to safety risks for agents attempting to repossess vehicles. The auto industry, inflated by pandemic liquidity, overproduced and overpriced vehicles, leading to inventory gluts and collapsing demand. Consumers now seek used cars under $10,000 in the 5-10 years used range, but used cars break down and rising costs in auto maintenance and repairs are triggering defaults even in that segment. Dealerships face mounting write-offs as volumes shrink.
Meanwhile, student loan defaults are dragging down credit scores by 200 points or more, prompting credit card companies to slash credit limits. With an estimated 65% of households living paycheck to paycheck, Buy Now Pay Later (BNPL) services have become a lifeline for many, with 25 percent of consumers living check-to-check, using them to buy groceries. These companies bypass traditional credit scores, relying on machine learning to assess risk through overdrafts and delinquencies. Still, some users are being declined at checkout, highlighting the fragility of this safety net.
BNLP services share several characteristics with predatory lending, particularly in how they target financially vulnerable consumers and obscure the true cost of borrowing. Like payday loans and subprime credit products, BNPL offerings often appeal to those with limited access to traditional credit. They promise convenience and instant gratification without upfront interest, but they frequently rely on late fees, penalties, and opaque terms to generate revenue. Many BNPL providers do not assess creditworthiness through conventional means like FICO scores, instead using behavioral data such as overdraft history or missed payments to make lending decisions. This allows them to extend credit to high-risk borrowers who may already be struggling financially.
The structure of BNPL also encourages overconsumption. By breaking purchases into smaller installments, it creates the illusion of affordability, leading consumers to spend more than they can realistically repay. When payments are missed, the consequences can be severe, including damage to credit scores and escalating fees. This mirrors the cycle of dependency seen in predatory lending, where short-term relief leads to long-term financial harm. While BNPL is marketed as a modern, tech-savvy alternative to credit cards, its underlying mechanics often replicate the same exploitative dynamics that have long defined predatory lending.
Student loan delinquencies have surged following the end of pandemic-era forbearance. Between January and March 2025, about 14 percent of borrowers were seriously delinquent or in default. This marks a dramatic rise from under 1 percent in late 2024, when missed payments were still shielded from credit reporting. The average age of a delinquent borrower has increased to over 40, indicating that older millennials and Gen X are struggling most with resumed payments. These delinquencies are having a severe impact on credit scores, with millions of borrowers seeing drops of 100 to 150 points or more, which limits access to affordable credit and housing.
Debt levels also vary sharply by age. Gen Z borrowers, aged 24 and younger, carry the lowest average student loan debt at around $14,315. Millennials aged 25 to 34 average $33,173, while those aged 35 to 49 who are often in their peak earning years carry the second-highest average at $43,438. Borrowers aged 50 to 61 have the highest average debt at $45,138, reflecting long-term repayment burdens and possibly graduate school loans. Even seniors aged 62 and up still carry an average of $41,269 in student loan debt. These figures highlight how student debt is not just a young person’s issue but a multi-generational financial strain that continues to shape household budgets and credit access across the economy.
Overall, consumers are financially strained, choosing between essentials like food and transportation. With rising debt, falling credit scores, and shrinking access to credit, the next six to twelve months are likely to bring more delinquencies, repossessions, and economic stress.
All of this is against the backdrop of rising rental and home prices. In 2025, housing costs have become a major financial burden for American households. Rent now consumes nearly 29 percent of the average household’s income, with national average rent reaching $2,007 per month. In cities like New York and Miami, renters spend over 37 percent of their income on housing, while more affordable areas like Minneapolis and Austin see rent closer to 20 percent of income.
Homeowners are also feeling the strain. Mortgage payments, along with taxes, insurance, and utilities, account for about 21.4 percent of household income. The median monthly mortgage cost rose to $2,035 in 2024, and for new buyers, especially in high-cost regions, housing can consume up to 38 percent of income. This makes homeownership increasingly out of reach for many families earning the national median income of $97,800.
Home insurance adds another layer of expense. The average annual premium is $2,470, which represents about 3.2 percent of household income. Rising premiums are driven by climate-related risks and higher rebuilding costs, further squeezing household budgets.
Altogether, rent, mortgage payments, and insurance now consume more than half of the average household’s income in many parts of the country. This growing financial pressure is contributing to rising delinquencies, reduced consumer spending, and broader economic stress.
Historically, similar lags have masked downturns. In the lead-up to the 2008 crisis, subprime mortgage lending expanded rapidly, supported by securitization and low interest rates. Consumers appeared solvent, housing prices soared, and markets rallied. But once defaults began, the illusion collapsed, triggering a credit crunch and a 50 percent drop in the S&P 500. The lag between credit expansion and default masked systemic risk until it was too late.
Today’s consumer credit crisis echoes that pattern. As these supports unwind, the economy faces a reckoning that could puncture the current market optimism. Leading indicators like the inverted yield curve and rising credit card delinquencies suggest that the lag is ending and the consequences may soon follow.
As households begin defaulting or pulling back on spending, corporate earnings suffer, especially in consumer-facing industries. Financial institutions may tighten lending standards, reducing liquidity and increasing risk premiums. This can trigger sell-offs in equities, especially in sectors sensitive to consumer demand, and lead to broader market corrections. If consumer credit continues to deteriorate, it could undermine the foundation of the current bull market and expose vulnerabilities in asset-backed securities and retail-heavy portfolios.