Consumer credit is cracking where you’d least expect it…

From the desk of Miles Everson:

Investing is an activity that has helped many attain financial freedom for decades.

That’s why every Wednesday, I talk about investing in the hopes of helping readers build their wealth through this activity.

In today’s  “The Independent Investor,”  I’ll discuss consumer credit and how a crack is forming where investors, and even experts, least expect it.

Eager to know more?

Continue reading below!

Consumer credit is cracking where you’d least expect it…

For the past few years, consumer-driven spending has powered the American economy during the pandemic and even after it ended.

With stimulus checks in hand and low interest rates, consumers—especially high earners—spent and borrowed without worry.

Many high-income households spent on luxuries like cars, vacations, home upgrades, and even premium subscriptions.

Fast forward to now, the U.S. economy is sitting on a massive pile of debt, and as of the second quarter of 2025, consumer debt has soared to USD 18.4 trillion. 

While it may be easy to assume the bulk of this debt is from lower-income households, you’d have to think again.

Defaults are rising where the wallets are deepest… and there are signs there’s a major pullback on spending as high-income earners are struggling to finance their debt.

This isn’t a sign to panic yet. However, it does show financial stress is building up in places where it usually doesn’t.

Data from credit-scoring firm VantageScore shows that Americans making over USD 150,000 are falling behind on their credit card and auto loan payments faster than anyone else. Their delinquency rate has surged nearly 20% over the past two years.

According to a  Federal Reserve Bank of Louis  report, the number of people who make late card payments in the highest-income ZIP codes are rising at double the pace of low-income areas over the last year.

So, why are upper-income earners feeling the squeeze?

For one, soaring interest rates, combined with the end of pandemic-era student loan forgiveness programs have made debt servicing much more expensive for consumers across all income brackets.

Resumed student loan payments are squeezing household budgets. According to  New York Federal Reserve Bank  data, the percentage of balances on federal student loans that were at least 90 days delinquent rose to 7.7% in the first three months of this year.

The labor market has been showing signs of cooling off as hiring freezes have swept through the jobs market. Layoffs and hirings have remained low through September of this year.

Moreover, wage growth has yet to pick up from 2022 highs of 6.7%. At present, wage growth stands at 4.1% as of August 2025.

In other words, the money used to pay off those debts is becoming harder to come by. Wage growth is being outpaced by inflation and switching to a higher-paying role—or picking up another gig—is becoming increasingly difficult due to a cooling job market.

These mounting pressures are taking a toll on this consumer-driven economy.

During the first quarter, consumer spending has been at its weakest since the start of the pandemic… and data from April and May have indicated lesser spending in areas like recreation, air transportation, and accommodations.

Now, before you start thinking that we’re on the verge of an economic crisis, read this first.

According to  Professor Joel Litman , Chairman and CEO of  Valens Research  and Chief Investment Officer of  Altimetry Financial Research, and his team, overall household debt remains subdued. 

Debt-to-GDP is around 68%—down sharply from 98% in 2008 and closer to late-1990s levels. That reflects a post-crisis period of deleveraging, especially in major categories like mortgages.

Said another way, most consumers aren’t overleveraged, and the broader debt situation remains stable despite rising delinquencies. 

If debt levels begin rising from here, then it could be a signal of deeper cracks in the consumer-driven growth story.

For now, stay put and don’t panic. The data will give you the whole picture in due time.

Hope you’ve found this week’s insights interesting and helpful.

Stay tuned for next Wednesday’s The Independent Investor!

The future of investing may soon be rewritten—not by a market crash nor a technological breakthrough, but by the dismantling of a long-standing financial framework that has shaped Wall Street for decades.

Learn more about  the end of the GAAP era  in next week’s article!