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Money was never discussed in Fernando’s family, when he was growing up and as an adult he never had to think about finances. So it was a surprise to find himself unable to pay his credit card debt at 26, when he had just quit his $45,000 job and began working on commissions. 

Fernando, now 29, who prefers to not publicize his last name, now works at a marketing automation company in New York. He says he hadn’t even realized how he ended up having to pay a monthly bill of thousands of dollars for his American Express card right in the peak of the pandemic in 2020.

 “I remember standing on the balcony in Florida and I was like ‘Wow, I have to get on the phone with AmEx and figure this out,’” Fernando said. 

Fernando is an example of young Americans amassing large amounts of credit card debts and having trouble paying them back, even in the economy that recovered from the pandemic and continues to grow. These debts will become more burdensome with the decades-high interest rate of around 20%. This means the borrowers are going to have a harder time amassing wealth than generations before and it might also become a drag on the broader economy. These people might prioritize covering their debts rather than spending, and if consumers don’t spend, then production decreases and the economy slows.

Really it’s a triple trouble for people with credit card debts,” said Ted Rossman, senior industry analyst for Bankrate. They have to deal with high debt balances, soared interest rates and higher credit card debts. 

Americans have been increasing their credit card debt at a record high pace. Credit card balances grew by 15% in 2022, the highest rate ever since the Fed started monitoring it in 1999. Total debt has also been racked up. At the end of 2022, it went over $3.8 trillion–a 27% increase from late 2019. 

Delinquency rates, or being 90 days overdue on credit card payment, have been rising at the fastest pace since the 2008 recession. At the end of 2022,18.3 million borrowers were struggling to pay back their credit card debt, compared to 6.8 million three years ago.

“Credit card debt is persistent. It's one of those things that's easy to get into and hard to get out of, unfortunately,” said Rossman.

Rising debts among people in their twenties comes as the broader economy seems strong. By many indicators, it is strong. Latest government reports show that consumers keep spending, retail sales numbers are up and the job market is tight and wages are increasing. 

“There's a lot of conflicting data points. Are we headed for a recession? How much higher are rates going to go? How much higher would unemployment go? There are a lot of oddities, inconsistencies and uncertainty right now, “ Rossman added. 

Even though millennials and younger borrowers are struggling to pay their debts, the broader condition of the economy is still strong, a divergence in how the economy is affecting different groups

Lower income households found their expenses going up faster than their income, and so they were forced to fall back on credit cards to help them buy what they needed to buy, explains Scott Hoyt, the senior director at Moody’s Analytics. But, he says, overall consumer spending, which has remained high in the past months, is powered disproportionately by higher income households. That's why the higher debt among the young and low income households’ financial struggle are not reflected in the overall condition of the U.S. economy.

“If you look at it from a broad historical perspective, yes, debt is higher, but it's still not high. If you look at, for example, the Fed’s Debt Service Burden, which is a measure of minimum debt payments as a share of after-tax income, it’s still near pre pandemic levels,” Hoyt said.

Meanwhile, an end to the student debt loan moratorium will make the situation worse, along with the increased interest rates, which have soared since around 16% a year ago. So, many young borrowers are turning to alternative ways of borrowing, such as so-called Buy Now, Pay Later services. 

The trend of turning to Buy Now, Pay Later products is concerning because they are not regulated or tracked enough and they don’t count as credit. So it’s easy to accumulate an uncontrollable amount of debt through that, according to Lucia Mattox, the director of western states outreach and senior policy manager at Center for Responsible Lending. 

“Because they [Buy Now, Pay Later payments] are tied to folks with a bank statement, they can go into overdraft easily,” Mattox said.

At the same time, credit card counselors say, in many cases, to navigate paying debts, consumers have to prioritize credit card bills over purchasing other necessities or paying rent, as Fernando did. 

“Not only was my spending increasing on the card every month, but then the income also left. It was just gone. So I had to make a decision. It was like ‘Alright, do I hold onto the savings that I have or do I use the savings to pay off the card as much as I can?’ But even the savings wasn't enough to pay off the card,” Fernando said.

Unlike many of his peers, he was fortunate and eventually got a handle on his debt. He reached out to a non-profit credit counseling organization that created a plan for how to pay the debt in small installments. He now lives in Jersey City with a six figure salary and is paying his debt in smaller installments. 

“It was definitely scary. It was the first time I ever had to worry about money,” he added.