With unemployment at a four-year high and rising, this argument has weight, especially as hiring momentum shows signs of turning into outright job losses. Indeed, some measurements show that defaults have “increased,” as noted by the New York Fed. But others reveal a more nuanced reality: Several categories are stabilizing, or even easing, after the post-pandemic climb.“Household debt burdens and debt servicing costs remain low by historical standards, and credit card defaults continued to stabilize in the third quarter of 2025,” Goldman Sachs economist Joseph Briggs wrote on Monday.
Total debt repayments as a share of disposable income have held steady at just above 11% in recent quarters – lower than levels just before the Covid-19 recession and below rates that preceded the last three US recessions since 1990. With expectations of falling interest rates and the possibility of budget support on the horizon, the outlook for consumer finances – even for lower-income households – may be rosier than many fear.
Credit where credit is due
The credit card balance in the United States currently stands at approximately $1.23 trillion, roughly a quarter of the U.S. debt burden of $5.09 trillion. Now that the average credit card interest rate is above 20%, the pressure on borrowers is high.
Yet the number of delinquencies in this category is actually declining. Fed data shows that the overall credit card default rate as of September is 2.98%, up from 3.22% in June last year – the highest figure since 2011.
There are also promising indications within the lower income segments. John Silvia, CEO and founder of Dynamic Economic Strategy, points out that when the top 100 banks – which serve wealthier customers – are excluded, the default rate at the remaining 4,000 U.S. commercial banks is now below 7%. That’s a far cry from the decades-long high of nearly 8% just a few years ago.
“Credit card delinquencies are a sensitive indicator of the credit cycle,” Silvia notes. “From the perspective of small banks, there is no immediate problem: steady economic growth, rising house prices and lower two-year government bond yields are all positive.”
Lower financing costs may also be in the offing. The Federal Reserve is widely expected to resume its easing cycle next week. While falling interest rates will boost asset prices and disproportionately benefit wealthier households, they also promise some relief for borrowers across the board.
Looking at wage growth
Strong income growth remains essential to control delinquencies, and wages continue to provide a cushion for the time being. According to the Atlanta Fed, average nominal wage increases remain above 4% year-over-year, which is still positive in real terms.
But the risks remain. Inflation has not yet fully cooled, job creation has slowed and some data points show a bleaker picture. For example, student loan defaults have risen sharply since the 12-month payment moratorium expired at the end of last year. With student loans totaling $1.65 trillion – about a third of all non-mortgage household debt – the pressure is becoming increasingly apparent.
Should the labor market weaken further, the debt outlook will deteriorate rapidly. But for now, several indicators suggest that American consumers are holding up better than the pessimists say. Arrears are stabilizing, debt levels remain manageable and wage increases continue to provide breathing space.
At least at this point, there are reasons for cautious optimism that the worst of the debt stress may be over.
(Disclaimer: This article comes from Reuters)
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