Our trillion-dollar credit card bill

Summary

Today, Explained: Our Trillion-Dollar Credit Card Bill

Podcast Information:

• Title: Today, Explained
• Host/Author: Vox
• Description: Today, Explained is Vox's daily news explainer podcast. Hosts Sean Rameswaram and Noel King guide listeners through the most important stories of the day.
• Episode: Our Trillion-Dollar Credit Card Bill
• Release Date: December 26, 2024

---

Introduction: The Rising Tide of Credit Card Debt

In the December 26, 2024 episode of Today, Explained, Vox delves deep into the burgeoning issue of American credit card debt, which has surged to over $1 trillion. Hosts Jonquin Hill and Nick Wolney explore the factors contributing to this alarming trend, its impact on various demographics, and potential solutions to alleviate the crisis.

The Surge in Credit Card Debt

Jonquin Hill sets the stage by recalling a brief respite from credit card debt during the COVID-19 pandemic when reduced spending and federal stimulus checks provided financial relief to many Americans. However, as federal aid tapered off and inflation surged, consumers found themselves increasingly reliant on credit cards to cover everyday expenses.

Nick Wolney highlights the severity of the situation:

"I could put my entire paycheck towards paying it off for the entire year and it would still take me about two years to pay it all off, plus interest."
(02:05)

Over the past year and a half, credit card spending has reached unprecedented levels, with interest rates on these cards increasing by nearly 30%. In the first quarter of 2024 alone, the average credit card interest rate hit a record 21.59%, with retail cards soaring closer to 30%.

Interest Rates: The Primary Culprit

Wolney underscores the critical role of soaring interest rates in exacerbating credit card debt:

"It's difficult to visualize how much something actually costs when you're just making these very, very small payments... At today's rates, you are paying almost $1,200 in interest on a $1,000 balance."
(03:17)

The reduction of minimum monthly payments from 5% to 2% in the 1980s allowed consumers to accumulate higher balances, a strategy that credit card companies exploited to maximize profits. This shift has led to the average household credit card debt reaching approximately $6,500, the highest in nearly four decades.

Personal Stories: The Human Face of Debt

Several personal accounts illustrate the real-life impact of mounting credit card debt:

• Jose Henriquez from San Francisco shares his journey:

  "After COVID, I was back to $20,000 in credit card debt just to make ends meet. I'm trying to pay it down a little bit every month, but it's hard without any savings."
  (05:53)

• Sam from Greenville, South Carolina:

  "I had to use credit cards to get me through college because the federal government would not loan me enough money to make ends meet. I am now working almost 80 hours a week just to make the minimum payments on my credit card."
  (07:07)

• Olena from Atlanta, Georgia:

  "I am actually about to file for bankruptcy because of just the high cost of living. It has put me into really deep credit card debt. I can't even make the minimum payment anymore."
  (07:12)

• Lillian from Nashville, Tennessee:

  "I currently pay off my credit card every month at the end of the month, but it's been a major problem with me saving money. All of that extra $2,000 a month is going towards the credit card."
  (07:47)

These testimonials highlight the pervasive struggle many Americans face in managing credit card debt amidst rising living costs and insufficient savings.

Demographic Impact: Gen Z in the Spotlight

The episode emphasizes that credit card debt is not uniformly distributed across demographics. Generation Z is particularly vulnerable:

"One in every seven Gen Z credit card borrowers are completely maxed out on their balances."
(08:30)

With the median credit limit for Gen Z at $4,500, significantly lower than the $16,000 average for other generations, younger borrowers are quickly ensnared in debt. A recent TransUnion study reveals that 84% of 22 to 24-year-olds possessed a credit card in 2023, a stark increase from 61% among millennials in the same age bracket back in 2013. This early and widespread adoption of credit cards among Gen Z underscores the urgency of addressing their financial education and support.

Credit Scores and Financial Health

Credit card debt has profound implications for individuals' credit scores, which are crucial for major life purchases like homes and cars. Wolney explains:

"Utilization is a pretty chunky part of credit score; it accounts for 30% of the overall FICO score."
(09:47)

Maintaining low credit utilization can preserve credit scores, but accumulating high balances can severely damage them. Additionally, delinquent payments further harm credit ratings, making it harder for individuals to secure loans or favorable interest rates in the future.

Legislative Efforts and Policy Responses

In response to the crisis, various legislative measures have been proposed to cap credit card interest rates and protect consumers. The Card Act, formally known as the Credit Card Accountability, Responsibility, and Disclosure Act of 2009, introduced measures such as:

• Requiring clear disclosure of how long it would take to pay off a balance with only minimum payments.
• Preventing retroactive rate hikes.
• Providing consumers with at least 21 days to pay their bills.

However, while these regulations provided some relief, Nick Wolney notes:

"It gave consumers at least 21 days from the date of statement to actually pay their bill... But we're dealing with quite a large boulder here. There's more work to be done."
(14:58)

More recent efforts, such as the Capping Credit Card Interest Rates Act introduced by Senator Josh Hawley, aim to set an 18% interest rate ceiling and cap fees across all credit cards. Despite garnering attention, such bills often stall in committee stages due to significant lobbying from financial institutions.

Historical Context: Understanding the Regulatory Landscape

The Supreme Court's 1978 decision in Marquette National Bank v. First of Omaha Corp. dramatically reshaped the credit card industry's regulatory environment. By allowing national banks to adhere to the usury laws of their home states, many institutions relocated to states like South Dakota, Delaware, and Nevada, which have more lenient regulations. This deregulation enabled banks to charge higher interest rates nationwide, contributing to the current crisis of soaring credit card debt.

Buy Now, Pay Later: An Emerging Threat

The episode also addresses the rise of Buy Now, Pay Later (BNPL) services like Klarna, which offer consumers the option to split purchases into smaller, interest-free payments. While seemingly harmless, BNPL schemes often circumvent traditional lending regulations by limiting payments to a four-installment plan over six weeks. This structure keeps them below the threshold requiring full regulatory compliance under the Truth in Lending Act, allowing companies to bypass stringent reporting and offering little protection for consumers.

Pathways to Recovery: Personal Finance Strategies

For individuals seeking to escape the clutches of credit card debt, Wolney emphasizes foundational personal finance principles:

1. Increase Income: Seeking additional sources of income can provide the necessary funds to tackle debt.
2. Reduce Expenses: Tightening budgets and cutting unnecessary costs can free up money for debt repayment.
3. Invest the Difference: Allocating any surplus funds towards investments can aid long-term financial stability.

Practical steps include:

• Budgeting: Meticulously tracking spending to identify areas for cuts.
• Negotiating Rates: Contacting credit card companies to negotiate lower interest rates.
• Debt Consolidation: Combining multiple debts into a single, more manageable payment plan.

The Road Ahead: Policy and Personal Responsibility

While individual actions are crucial, Wolney argues that policy changes are equally essential to address systemic issues:

"The most immediate policy fix would be to cap interest rates, you know, and to just allow us to stop the bleeding."
(21:36)

Addressing the high cost of living, enhancing financial literacy, and implementing stricter regulations on both credit cards and BNPL services are vital steps toward mitigating the credit card debt crisis.

Conclusion: A Call to Action

The episode concludes with a sobering reminder of the persistent and growing nature of credit card debt in America. With over $1.12 trillion in debt and no significant reduction observed in the most recent quarter, the situation demands urgent attention from both policymakers and consumers alike. By understanding the root causes, recognizing the pervasive impact across demographics, and advocating for meaningful legislative action, there is hope for reversing the tide of credit card debt and fostering a more financially secure future for all Americans.

---

Credits:

• Produced by: Victoria Chamberlain
• Edited by: Matt Collette
• Fact-Checked by: Laura Bullard and Aminah Al Saadi
• Engineered by: Andrea Christiansdotter and Patrick Boyd
• Host: Jonquin Hill

For more insights, Jonquin Hill hosts another Vox podcast, Explain it to Me, addressing a wide range of questions from listeners. Questions can be submitted via email at [e-mail] or by calling 1-800-618-854.

Transcript

[Jonquin Hill]

There was this brief moment a couple years ago when it looked like Americans just might finally get their credit card spending in check. We were spending less during COVID and those federal stimulus checks meant a lot of us were actually making more money.

[Nick Wolney]

But then when those ended and inflation reared its ugly head and came back around, it really caught people off guard and they're digging themselves deeper and deeper into debt in order to make ends meet.

[Jonquin Hill]

Over the past year and a half, as Americans were putting more on their credit cards than ever before, interest rates rose on those cards by nearly a third.

[Nick Wolney]

I could put all of my entire paycheck towards paying it off for the entire year and it would still take me about two years to pay it all off, plus interest.

[Jonquin Hill]

So coming up on Today Explained, we're revisiting an episode from earlier this year about how Americans racked up over a trillion dollars in credit card debt and what it'll take to get out of it.

[Preet Bharara]

This episode is brought to you by Lifelock. The holidays mean more travel, more shopping, more time online and more personal info in places that could expose you to identity theft. That's why Lifelock monitors millions of data points every second. If your identity is stolen, their US based restoration specialist will fix it, guaranteed or your money back. Get more holiday fun and less holiday worry with Lifelock. Save up to 40% your first year. Visit lifelock.com podcast terms apply this episode.

[Unknown Sponsor]

Is brought to you by Dutch Bros. Big smiles, rocking tunes and epic drinks. Dutch Bros. Is all about you. Choose from a variety of customizable handcrafted beverages like our Rebel energy drinks, coffees, teas and more. Download the Dutch Bros app for a free medium drink. Plus find your nearest shop, order ahead and start earning Rewards offer valid for new app users only. Free medium drink reward upon registration. 14 day expiration terms apply. See dutchbros.com foreign.

[Jonquin Hill]

I'm Jonquin Hill filling in as hosts and today we're talking to this guy.

[Nick Wolney]

I'm Nick Wolney and I'm a managing editor at CNET and a finance journalist.

[Jonquin Hill]

Nick's been following the rapid growth of credit card debt, talking to banks and credit card companies and regular people dealing with debt. And he says the first thing you've got to understand about credit cards right now is is interest rates.

[Nick Wolney]

In Q1 of 2024, the Federal Reserve reported that the average credit card rate is 21.59%. This is a record high. We've been above 20% for a year. And for retail cards, target or you go to wherever it is and I'm just trying to buy dish soap. And they're like, you know, do you want this card? You want the red card? You know, all those retail cards, those tend to have an average closer to 30%. And so in the moment, if someone is, is cash strapped or particularly there tends to be something like sign on bonus or perhaps a credit, an opportunity to save some extra money. In the moment, a lot of people will fall prey to that and not realize that they have this 30% interest charge that is, is, is accruing on this. And they just have this lagging credit card debt that persists as a result.

[Jonquin Hill]

I wonder, do people understand what they're getting into when they get these high limit, high interest credit cards and then don't pay off their balance every month? Do people even realize that they're getting a high limit, high interest credit card?

[Nick Wolney]

I don't think so. When I interviewed a financial planner at Northwestern Mutual last year, she pointed out that her clients would regularly say, oh, I'm good, I'm making the minimum payment. I'm good. Like, I'm paying my credit card. And she's like, no, that's the minimum payment. And these are the people who are probably more fiscally savvy if they've hired a financial advisor, right? If you've hired a financial advisor at Northwestern Mutual, you're, you're probably at least thinking about your money and about your expenses and things like that. And those people are saying, oh, I'm good at making the minimum payment. I'm good. It's quite hard to, to visualize how much something actually costs when you're just, you know, making these very, very small payments. And it's difficult for us, I think, to, to realize the total amount of interest and how much extra interest we would pay. So let's say you're, you're carry $1,000 balance on your credit card. Two years ago, if you were making minimum payments, it would have cost you $729 in interest to pay it off. At today's rates, you are paying almost $1,200 in interest. You know, credit cards didn't used to be as profitable as they are right now. And it also used to be that the minimum monthly payment was 5% of your balance. In the 1980s, some, some very smart mathematicians realized that if they made two tweaks to credit card culture, there'd be a lot more profit to be made. And those two tweaks were to lower the minimum monthly payment from 5% to 2% and then to increase people's credit limit. And so it makes the consumer feel good in the moment, because rather than being almost maxed out on your credit card, if you have a much higher limit, you're not as maxed out. You've got a lot of wiggle room. And then if your minimum monthly payment is less, then it's like, oh, this is not so bad. It's only 2% of my balance rather than 5% of my balance. What that all meant is that people were more likely to have higher balances. The average household is now carrying about $6,500 in credit card debt. That is the highest in almost four decades.

[Jonquin Hill]

As you were doing that explanation, I couldn't help but hear the voice of my mom. Like, I remember the first time my credit card limit got raised and I didn't add. They were just like, yeah, hey, girl, you want some more thousands to spend? And my mom was like, no, that's what they want. Like, don't do it.

[Nick Wolney]

Someone I spoke to last year as well, talked about, his name was Jose Henriquez, lives in San Francisco. And he talked about how, you know, when he. When he emigrated to the U.S. you know, he wanted to build his credit to eventually buy a house one day. And so he took out a credit card when he was 18, and he got a $500 limit, which, you know, like, does not exist anymore. But over time, as his limit increased, as he got more credit card offers, you know, fast forward 10 years, he's $25,000 in debt. He has to work with a debt consolidation company to all down completely wrecks his credit score because of what's needed in order to work with those creditors and things like that. And then during COVID he lost his job. And so even though he had paid it all down, you know, after seven or eight months, he was back to $20,000 in credit card debt just to make ends meet. And I think that him sharing that story with me just felt like something that was. Is a paradigm for what a lot of people are experiencing with credit cards. You know, they're just trying to make ends meet. They're just trying to survive. They're slowly trying to pay it down and pay a little bit extra every month or every other month. But because people have so little in savings, you know, you're one. You're one car problem away from being knocked all the way back to the beginning, so to speak.

[Sam]

My name is Sam, calling from Greenville, South Carolina.

[Nick Wolney]

I had to use credit cards to.

[Sam]

Get me through college because the federal government would not loan me enough money to make ends meet. I am now working almost 80 hours a week just to make the minimum payments on my credit card. Hi, my name is Olena. I am from Atlanta, Georgia and I am actually about to file for bankruptcy because of just the high cost of living. It has put me into really deep credit card debt. I can't even make the minimum payment anymore. Hi, my name is Lillian. I'm 26 years old. I live in Nashville, Tennessee. I currently pay off my credit card every month at the end of the month. But it has been a major problem with me saving money, just not being able to save those extra $2,000 a month because it's all going towards the credit card. So yeah, just trying to keep, keep more in touch with what I'm spending every month. But it's hard to do when all of your spending, including your groceries, your gas, your day to day expenses, go on the credit card.

[Jonquin Hill]

Is this credit card debt evenly distributed throughout demographics or are there subsets of people in the country who are feeling this a lot more?

[Nick Wolney]

One group that's having a hard time when it comes to credit card debt is Gen Z. A report from the Federal Reserve bank of New York found that one in every seven Gen Z credit card borrowers are completely maxed out on their balances. One factor to this is that Gen Z credit card holders have much lower limits to begin with. So the median credit limit for gen Z was $4,500, whereas it's over $16,000 for all the other generations. But it illustrates how younger borrowers get trapped in this cycle right from the start, especially when they either aren't earning enough or they're using a card as their emergency fund, since they don't have that safety net established yet. There was also a recent study from TransUnion which found that 84% of 22 to 24 year olds had a credit card in 2023. When that same age bracket was measured with millennials back in 2013, only 61% of them had a credit card. So it's not really a kids being kids argument. Whether they want to or they need to. Gen Z consumers are opening up and using their credit cards sooner than previous generations.

[Jonquin Hill]

I want to talk about the almighty credit score, like, which is part of the reason people even get credit cards in the first place. You know, you to get a car, you need to get a house, like you need it for all these things. What is this doing to people's credit scores?

[Nick Wolney]

Utilization is a pretty chunky part of credit score, IT accounts for 30% of the overall FICO score. So in the moment, as long as people are paying their credit cards and they're not maxing themselves out in terms of their balances, it won't necessarily impact their credit score. Delinquency does impact the credit score. Right. If you start missing payments, then you're going to get dinged for that. It's also a great point that. That credit score culture in general is. It's kind of twisted. And for most people, when they're young, the easiest way to build up your credit history and to get a line of credit of some kind is the credit card. That's the fastest way to open up a line of credit in most cases. And so we kind of have this culture that you. I mean, not even just culture, it's just in terms of how people buy a house, how people buy a car. Your credit score, it's. It's very much your financial rating. You know, it's your track record. And so it's kind of difficult for us to divorce ourselves from credit card culture because of that.

[Jonquin Hill]

Yeah, I guess it's like, it's. It's one of those things where it's like, okay, in the grand scheme, you probably need a credit card before your frontal lobe develops, but it's like, should you have a credit card before your frontal lobe develops? I don't know. I think of me at 21. No, take that away from her.

[Nick Wolney]

Well, and I. Last year, I spoke to a. A financial educator who teaches classes in high schools, teaches financial literacy classes in high schools. And something she pointed out, she said happens in every single class. Kids will. Well, they won't raise their hand in the class. They'll come up to her afterwards, you know, and they'll say, you know, my parents gave me this credit card, and it's just. It feels like it's just like free money, you know, and it's like, oh, you know, so the parents, it feels like they're doing a good job in terms of opening up a credit card and helping their child with their credit history. But for many of those kids, they don't. They don't understand why they have the credit card and they don't understand how to use it. And, you know, I would assert that young people are perhaps more impulsive, you know, at times as they start to come into adulthood and things like that. And so just having that financial literacy piece in place, you know, is really, really important.

[Jonquin Hill]

More with CNET's Nick Wolney, when today explained return.

[Unknown Sponsor]

Weight loss. It needs to be fast and sustainable. Noom GLP1 starts at just $149 and ships to your door in seven days. Take it from Marcos, who's loving his journey with Noom GLP1.

[Nick Wolney]

I'm getting to where I want to be. I'm in such a good place right now and I'm very confident that I'm going to be able to continue this weight loss, this journey, and really make a true lifestyle change.

[Unknown Sponsor]

Don't believe it. Take it from Cam, who's gaining more confidence with Noom GLP1.

[Nick Wolney]

I really am starting to feel better. Like, I feel a lot lighter. I feel a lot happier.

[Sam]

I feel a lot more confident.

[Nick Wolney]

I just feel a lot more like myself.

[Sam]

I don't feel so bogged down every day.

[Unknown Sponsor]

$149 GLP1s now that's Noom Smart Noom the smart way to lose weight. Get started with Noom [e-mail] that's n o o m.com real Noom users compensated to provide their story. Individual results may vary. Not all customers will medically qual prescription medications. Compounded medications are not reviewed by the FDA for safety, efficacy or quality.

[Preet Bharara]

Why do so many of us get happiness wrong and how can we start to get it right?

[Jonquin Hill]

I mean, I think we assume that happiness is about positive emotion on all the time, right?

[Nick Wolney]

Often very high arousal, positive emotion.

[Sam]

But that's not really what we're talking about.

[Preet Bharara]

I'm Preet Bharara and this week Dr. Laurie Santos joins me on my podcast Stay Tuned with Preet to discuss the science behind happiness. We explore job crafting, the parenting paradox, the arrival fallacy, and why acts of kindness might be the simplest path to fulfillment. The episode is out now. Search and follow Stay tuned with Preet Wherever you get your podcasts.

[Jonquin Hill]

Today explained. We're back with CNET's Nick Wolney talking credit cards. Okay, Nick, wasn't there legislation post financial crisis that was supposed to fix all of this and ease the burden on credit card holders?

[Nick Wolney]

I mean, there was and it did ease some of the burden. But you know when you're 100ft down the rabbit hole and you get a law that gets passed and, you know, you come 10ft back up, you're still quite far down the rabbit hole.

[Unknown Legislator]

The Card Act, Credit Card Accountability, Responsibility.

[Nick Wolney]

And Disclosure act that was in 2009.

[Unknown Legislator]

Statements will be required to tell credit card holders how long it will take to pay off a balance and what it will cost in interest if they only make the minimum monthly payments. We also put a stop to retroactive rate hikes that appear on a bill suddenly with no rhyme or reason.

[Nick Wolney]

It gave consumers at least 21 days from the date of statement to actually pay their bill.

[Unknown Legislator]

And this law ends the practice of shifting payment dates. This always used to bug me, you know, when you'd get, like, suddenly it was due on the 19th, when it had been the 31st.

[Nick Wolney]

It limited excessive marketing to young adults. There was a lot of marketing towards college students, right, who might be more susceptible to getting a credit card before they have a fully robust financial education, financial literacy. So it did make a little bit of a dent. But unfortunately, we're dealing with quite a large boulder here. And so there's more work to be done, certainly.

[Jonquin Hill]

How did we get to the point where there can be these wild, wild interest rates?

[Nick Wolney]

Regulations have loosened on credit card interest rates, and there are a few reasons why. So some history here. There was a Supreme Court opinion that came out in 1978, Marquette National bank versus First of Omaha Corp. And this opinion allowed national banks to be governed by the usury laws of the state that they are headquartered. And so, famously, in the late 70s, Citibank was just absolutely drowning. You know, inflation was extremely high circa 1980. It was actually so high that banks like Citibank were losing money on every single dollar that was on a credit card because they were capped on how much interest they could charge their consumers. So Citibank famously courted the governor of South Dakota and said, hey, we'd love to move our headquarters to South Dakota. Will your legislature invite us to come to South Dakota? And they agreed. So they abolished the usury laws in South Dakota. Citibank moved there. Several other banks moved there. Delaware followed, Nevada followed. And so as a result, no matter what state you live in, if you have a credit card from that bank and that bank is headquartered in Delaware or South Dakota, that bank can charge whatever it wants to on. On the credit card. And as a result, you have this deregulated landscape that allows national banks to jack up those credit card rates.

[Jonquin Hill]

So we're at a record high right now. But have Americans always carried credit card debt since these cards have been available?

[Nick Wolney]

Of course. What else is it for? Right. Like all the way back in the 1950s, you know, those very first credit cards that came out there was a card called Diners Club, which was one of the first forms of a credit card.

[Preet Bharara]

It's easy to spot a member of the club.

[Nick Wolney]

Last year, Diners Club members had over 10 million fine meals took over 500,000 vacations and savored many helpings of chop suey. And it was really, it was very much branded as this social club card, right? You could go out, you'd be in the diners club and things like that. And it was branded very much as an identity that was also akin to just a lot of the marketing and branding in general in the 1950s.

[Jonquin Hill]

Like when you, like when you put your Amex on the card and everyone's like, oh, it's so heavy, it's metal.

[Nick Wolney]

You know, you made it. When your cards go from sounding like this to sounding like this, or do you see this as a trend on Tick Tock now, Gen Zers showing off their MXs as a flat, that sounds.

[Jonquin Hill]

Like a good way to get your credit card information stolen.

[Nick Wolney]

Right? That's what I thought. Like, don't flash your platinum Amex to me, you know, and so, and so it's. That's kind of interesting for them as well. It's like the social clout of having the Platinum Amex is worth the $695 annual fee to that. But if you look at the total credit card debt in America, it's just gone up and up and up and up and up. We had two corrections. We had a correction in the housing crisis, and then we also had a correction during COVID where people were like, oh, crap, I better pay this down in case I lose my job. And so we did see corrections there, but otherwise we have seen that number ste go up. Another reason we're trying to sound the alarm now is that people are really struggling right Now. Historically, in Q1 of each year, we see a little bit of a payoff. People come off the holidays, they're like, oh, God, what have I done? And they're actually responsible. There's some of that New Year's resolution energy as well. People tend to pay down some of the balance. So we usually see a dimple in that line graph. And for the last two years, so Q1 of 2023 and this Q1 as well, people didn't really do that. So even most recently, we went from $1.1 trillion to $1.12 trillion. And this is the quarter where people are supposed to be, you know, really making a dent and paying down their balances. So it's concerning to some economists that people are not following that usual behavior, that people are actually needing their credit card in order to make ends meet. And there's also some concern that in terms of consumer spending, which accounts for A large part of overall GDP that that is perhaps being propped up somewhat by people using their cred and spending money that they don't necessarily have.

[Jonquin Hill]

Are there states or lawmakers who are advocating for capping these interest rates right now?

[Nick Wolney]

Yeah, I mean, it's happened multiple times. It tends to die in legislation or when it gets to a certain House committee or a Senate committee. We have. We have a couple of different ones that have been introduced over the years. The most recent one is the Capping Credit Card Interest Rates act that was introduced by Senator Hawley of Missouri, which was not on my bingo car that he would be the one to introduce that 18% ought to be the cap. My bill would cap it across the board. All credit cards cap fees as well, so the credit card companies can't come in through the back door and charge you more. This is basic fairness for working people in this country. The last time it was introduced, it was introduced by Bernie Sanders and aoc. Sometimes politicians will introduce these laws even though they know they're gonna die in a vote because it's a good political gambit it for them. Right. So Senator Hawley, when he's out on the campaign trail, people say, like, you're not fighting for the little guy. He'd be like, yeah, I did. I introduced this bill even though there's a tremendous amount of lobbying money from banks, understandably, that is flowing through D.C. at any given moment. So while we do see some of these different pieces of legislation emerge, you know, you go online to look at the status of the bill and it's been introduced. The stage that it's in is, okay, it's been introduced and it's with the committee. And, you know, it's unlikely that it's going to see the light of day again.

[Jonquin Hill]

Is there a policy fix to this?

[Nick Wolney]

There is. There is a policy fix. You know, whether or not we can bring it to fruition, I think is. Is the challenge. So the most immediate policy fix would be to cap interest rates, you know, and to just allow. Allow us to stop the bleeding. In terms of consumers falling deeper and deeper into debt, Taking a really good look at what are the limits that we are extending to consumers, we've got another. I'll just say it. We've got another villain in the picture, and that villain's name is Buy now, pay later. Explore your favorite stores in the Klarna app.

[Jonquin Hill]

Once you have chosen what you would.

[Nick Wolney]

Like to buy or if you know how much you'd like to spend, select pay with Klarna to Create a one.

[Jonquin Hill]

Time card, the klarna of it all.

[Nick Wolney]

Yeah. And so we've, you know, what's tricky about Buy Now Pay later is that those companies have been skirting reporting requirements, you know, and so for many people we can't even see how much that they have out on Buy Now Pay Later. Bloomberg did a Harris poll last month where they found that a third of respondents said they have over $1,000 out on buy now pay later. And this is four payments over six weeks. It's purposely four payments so that they can skirt under the Truth in Lending act, which once you get to five payments or more on any form of debt or any kind of loan, then you have a bunch of additional regulatory requirements that you have to adhere to. So that's why you almost always see it be four payments, usually over a six week period. So it's sort of a cousin to the credit card. Right. So now people already have all their credit card debt and you can use your credit card for Buy now pay later as well.

[Jonquin Hill]

Is there a way to get off this credit card ride? Like is there a way you can just opt out and say I'm not doing this? No, no.

[Nick Wolney]

If you have credit card debt, then it's just going back to the bones of personal finance. Right. I like to say that when we gun down to it, personal finance, it's just eight words. Make more money, lower expenses, invest the difference. And so if you're trying to pay down that debt and you want to put some extra money toward that debt, then taking a good look at your budget, seeing where you could lower expenses, perhaps bringing some extra money into the picture, that's going to be the most impactful way to make a dent on those balances. You know, stop using the credit card. Maybe if you're someone who uses the digital wallet a lot, maybe it's time to take those cards out of your wallet just so that you're not tempted in the moment to shop or to spend things like that. It could also be time to do some of those maybe more unsavory financial activities. You know, you call your cell phone company to see if you can get your lowered. You call the credit card company to see if you can get the APR lowered. There's plenty of free scripts and stuff like that online. I know it doesn't sound like much, but 50 or 100 bucks a month of savings, it really adds up. It's over $1,000 a year when you add it up. And for many people that can help make the biggest difference. We need some policy change that is about the cost of living as well, not just about the credit card as the instrument. Because I think despite their best intentions, consumers are going to keep using that tool to make ends meet for as long as as it's available to them and for as long as prices are at where they're at right now.

[Jonquin Hill]

That's CNET's Nick Molney. You can read his latest on credit cards maxed out Inside America's Credit Card Debt Crisis and what we do next [e-mail] Today's episode was produced by Victoria Chamberlain, edited by Matt Collette, Fact Checked by Laura Bullard and Aminah Al Saadi and engineered by Andrea Christiansdotter and Patrick Boyd. I'm Jonathan Hill and this is Today Explained. And when I'm not filling in for the Very cool Today Explained hosts I host my own podcast for Vox called Explain it to Me. It's your go to hotline for all your questions, big or small. We answer everything from how to make friends to Ranked Choice Voting's impact on Political polarization. If you have a question you want answered, email askvoxvox.com or call 1-800-618-854.