62% of Americans are now living paycheck to paycheck, according to recent research from PYMNTS Intelligence, highlighting a stark reality for many consumers today. For those living on the edge financially, every pay period is just enough to make it to the next — leaving them highly vulnerable to unexpected expenses.
Why it matters: Paycheck-to-paycheck households are increasingly reliant on revolving credit and are carrying higher outstanding balances compared to financially stable consumers. This dependency raises questions about how much disposable income these consumers have available for paying debts, which has critical implications for the credit and collections industry.
By the numbers:
- 59% of paycheck-to-paycheck consumers revolve their credit, compared to 23% of non-paycheck-to-paycheck consumers. Carrying unpaid balances month-to-month significantly adds to interest costs and financial strain.
- The average credit score for those living paycheck to paycheck ranges between 621 and 697, while financially stable consumers have an average credit score of 752. Lower credit scores limit access to traditional credit sources, often leading paycheck-to-paycheck consumers to high-risk options like payday loans.
- Paycheck-to-paycheck consumers who struggle to pay bills carry an average credit balance of $7,244, compared to $3,088 for those not living paycheck to paycheck.
Zoom in: Higher outstanding balances and greater credit utilization characterize paycheck-to-paycheck households. Those struggling with their bills used, on average, 69% of their credit limits — far more than the 29% used by financially stable consumers. Even those managing to pay bills without difficulty use an average of 39% of their available credit.
The bottom line: As financial pressure grows, paycheck-to-paycheck households are at greater risk of hitting their credit limits and defaulting. This has ripple effects for the credit and collections industry, suggesting that tailoring strategies to the unique challenges faced by these consumers is key to maximizing repayment outcomes and reducing risk.
