American credit card users remain strained by inflation and weighed down by economic uncertainty.

Even as inflation eases and wages rise, more than half of credit card users are in poor financial health and more than half carry a revolving balance, failing to pay their balance in full every month and accruing interest, according to an annual survey of credit card users by JD Power published on Thursday.

The analytics and consumer intelligence firm found only 46% of credit users are considered financially healthy, and 51% carry a revolving balance. Those numbers have held roughly steady since 2022, even as inflation eased and the economy escaped from pandemic doldrums.

John Cabell, managing director of payments intelligence for JD Power, said consumers struggled as pandemic aid dried up and the Federal Reserve hiked interest rates, a decision that trickled down to Americans with credit card debt.

Editor’s note: This interview has been edited for clarity and brevity.

PAYMENTS DIVE: What are some of the key takeaways from your findings?

JOHN CABELL: There is clearly a dynamic with the macroeconomic environment that's putting financial pressure on cardholders. With inflation and rising interest rates, we've seen a steady increase in that financial pressure in the last couple of years. This year we saw a tick upward in debt and a decline in financial health that's been persisting for now a couple of years

Is everyone equally impacted?

I think it is clear that there are a couple of different types of credit consumers that have very different needs, and increasingly the satisfaction seems to vary, and the gap has grown wider. Some have revolving debt on their credit cards and are not able to pay the statement [in full every month], versus those who may be transacting and building rewards on their product as a different way of using cards. That's an important dynamic to manage, particularly when there is economic uncertainty.

Why are so many people having difficulty paying off their credit card balances?

There have been differences since the pandemic in terms of the level of consumer savings, and the ability of consumers to build wealth over that time frame. Those dynamics are probably playing into this as well.

Will inflation and interest rates continue to be a problem?

With an uncertain outlook, that makes consumers a little more wary. I was reading an article a couple of days ago that said consumers are fed up with high prices and are deciding not to pay the extra money, and that's forcing prices downward in some cases because goods and services aren't selling.

Do you think this will mean people will cut back on using their credit cards?

Not necessarily. It's probably been a very long time since we've had a severe inflationary environment, and the credit card industry is very different today. I think we're seeing products that are very attractive to consumers from a rewards and benefits perspective that can be seductive for the opportunity for building a lifestyle, or points and miles or cashback rewards that feel like they would be helpful. The downside of the product, ultimately, is it is a borrowing contract. If you are not able to manage your spending and keep that balance from building, then you're going to pay an interest rate that may be pretty significant.

So you're telling me credit card companies are using these rewards programs to convince people to spend more on their cards?

That's a very attractive feature, and even if you have debt, you may think you're getting a good deal. But you're probably not if you're paying interest.

How have things changed in the past few years?

Compared to last year, the number of those who have revolving debt is roughly the same, but what we have seen in the last couple of years is revolvers are outnumbering transactors. There's a caveat that we made some changes in methodology, but it may be more problematic than what we've seen in past years. The notion of financial health did actually decline by a percentage point. That's a combination of whether they have long-term financial plans in place and whether they are able to pay monthly bills on time

By Patrick Cooley on Aug 16, 2024
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