Economic conditions such as gas prices well above $4 a gallon, according to AAA estimates, and annual inflation near 4%, according to the Bureau of Labor Statistics, have increased financial stress levels for Americans.
Financial stress levels among Americans fell slightly in the first quarter but are expected to rise again in the second quarter, according to the National Credit Counseling Foundation’s quarterly financial stress forecast released Wednesday.
The forecast considers data on consumer counseling behavior and other broader economic indicators to predict trends in Americans’ financial security. It rates Americans’ financial stress on a scale of 1 to 10, with 10 being the highest stress level. The rating has remained above 6.3 since the end of 2024, compared to a post-pandemic low of 3.5 in 2021. The forecast for the three months to June is 6.7.
Bruce McCrary, NFCC’s senior vice president of membership and media relations, said Americans are “under financial stress.” This is due to near-historic levels of consumer debt, such as credit card and car loans, as well as rising prices.
The nonprofit, which provides education and solutions to individuals struggling with finances, especially debt management, reported a “significant spike” in consumers seeking credit counseling, which the NFCC said could be a red flag for the economy as a whole. While it’s heartening to see individuals seeking help before they run out of options and can’t pay their bills at all, the group says this widespread struggle could be evidence of the declining health of the consumer economy as a whole.
NFCC CEO Mike Croxon said in a press release that Wednesday’s results “suggest that pressures from persistent credit dependence and affordability challenges have reached a tipping point.” “Consumers want to be in charge of their obligations, but current market conditions are eroding that traditional ability.”
How a debt management plan can help reduce financial stress
David Devaney understands the weight that comes off your shoulders when you become debt free. The 80-year-old sought help to settle a $45,000 debt in 2020 while he was recovering from a back injury and subsequent surgery, he says.
He says that before his injury, he had racked up credit card debt to pay for normal living expenses and sometimes help with emergency expenses such as his children’s education or car repairs. He wasn’t yet in arrears with his outstanding credit card balances, but he knew he’d have a hard time keeping up as he relearned how to walk after surgery.
“I called my credit card holder, my bank, everything, and they wouldn’t talk to me,” Devaney said. I wasn’t overdue or anything, but they couldn’t understand why I was calling. ”
He was living on about $1,800 a month from Social Security, and although he was living in an inexpensive area of Arizona at the time, debt payments were threatening his ability to survive. After the bank refused to help him, Devaney contacted AARP, which connected him with American Financial Solutions, a Seattle-based NFCC member organization. The organization negotiated a debt management plan with creditors on Mr Devaney’s behalf.
High interest rates were the biggest factor preventing Devaney from getting out of debt on his own, he said. He said the credit counseling organization negotiated a reduction in his minimum debt payment from about $1,200 a month to $900 a month and paid the organization a fee of about $35 a month. As my balance went down, so did my minimum payment requirement, but I continued to pay $900 a month, even increasing my payments as I started work and had more money to put towards my debt.
“I found the right agency to pay it back, and they did a phenomenal job,” he says.
Devaney finished paying off her $45,000 debt in 2024. I moved to New Orleans to be closer to family and bought a house. He spent about $3,500 on credit cards to furnish his home, but that and the mortgage are his only debts now.
Who is a debt management plan best for?
McCrary said anyone can enroll their unsecured debt into a debt management plan through NFCC’s partners. Credit counseling agencies work with creditors to lower interest rates to help individuals pay off their debts. He said registrants will see interest rates on debt such as credit cards and personal loans fall from about 25% to less than 10%.
“Simply enrolling these accounts in a debt management program can save you thousands of dollars each year, as late fees and over-the-line fees are suspended and interest rates are reduced when you enroll in the program as agreed with your creditor,” he says.
Michael Reynolds, an Indiana-based certified financial planner, has recommended similar credit counseling services to clients in the past, and he says, “It tends to be a good option for people who have a hard time paying off credit card debt, especially those who have multiple credit cards with high balances or interest rates.”
“This is partly psychological and partly optimization, but I’ve seen very high success rates in getting people out of debt with these programs,” he added.
Debt management plans typically have a monthly fee of $30 to $40 depending on the size of your debt, McCrary said, but “fees may be waived if you’re in extreme hardship or above the poverty line.”
McCrary said NFCC is seeing more consumers relying on credit to cover living expenses, but for many that debt is becoming unmanageable.
“People are falling behind and maxing out their credit card payments,” he says. “They’re primarily trying to get it back on track, but they’re also looking for answers about how to get a budget that’s commensurate with income and how to get back to a level of affordability that we’re not seeing right now,” he says.
But the silver lining, McCrary says, is that once you get your debt under control, you can often rebuild the rest of your finances.
“This is a viable option for people facing hardship, and those who sign up have a good chance of success, even under these difficult circumstances we’re seeing in the economy,” he says.
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