Perhaps not necessarily a surprise to anyone, consumers with lower incomes are falling increasingly behind on their finances while continuing to spend beyond their means and reporting higher debt payments every month, while higher-income earners are concentrating their finances on paying down high-interest debts like credit cards, according to a report released this week by Morning Consult. The report offers a glimpse into the state of the consumer and can help collection operations better understand the financial situations that consumers are facing and their ability to make payments on old debts.
The report establishes a household income level of $50,000 to separate resilient consumers from those who might be falling behind. Households at that level or higher have been able to sufficiently cover their debts and monthly expenses. Unfortunately for lower-income households, they don’t have the luxury of paying down high-interest credit card debt like higher-income households, and the strain of that burden is starting to show signs of becoming too much, according to the report.
Low-income households have been relying on savings to cover any monthly shortfalls, but that safety net is swindling, the report notes. Their one saving grace is that the amount of debt being carried by lower-income households is less than that of higher-income families. Higher-income families (those earning at least $100,000 per year) are spending about 20% of their monthly income to cover an average debt burden of about $1,600, whereas lower-income households are spending nearly 30% of the income to cover $800 in monthly debts.
“As pandemic-era assistance measures are phased out and interest rates remain elevated, lower-income households find themselves in a financially precarious situation, raising the risks associated with this cohort,” according to the report.