America’s Debt Crisis Just Hit a Milestone Not Seen Since 2013
Consumer spending can look perfectly healthy long after household budgets start to buckle, and a major nonprofit credit counselor just logged numbers that expose the gap between what Americans are buying and what they can actually afford.
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Consumer spending can look healthy long after household budgets start to buckle. A purchase financed with borrowed money still registers as a sale, but it also creates a claim on tomorrow’s paycheck. For investors, the danger is mistaking spending that depends on fresh borrowing for demand that can sustain itself.
That is why America’s debt crisis deserves attention beyond the headline balance. The growing need for repayment assistance offers a different view of consumer strength. Before paying a premium for companies counting on shoppers to spend more, investors should examine how much financial room those customers actually have left.
A $1 Billion Warning From Debt Counseling
Money Management International’s Oct. 15 release puts that pressure in numbers. The nonprofit credit counselor managed more than $1 billion in client debt through September, its highest level since 2013. It crossed that threshold in June.
September added two milestones: more than 2,500 new debt-management plans, the most since March 2011, and over 60,000 active plans, the most since 2017. Counseling volume increased 9.5% year over year.
Some borrowers are even turning to artificial intelligence to find a way out. MMI reported that clients finding the nonprofit through unpaid generative-AI search referrals, primarily ChatGPT, increased 48.8% year over year.
For those households, they have an average unsecured debt balance of $42,500, higher than MMI’s the average client’s unsecured debt of $40,200, which itself is up 4.8% from $38,300. Some 60% of the ChatGPT referrals hold at least one unsecured personal loan at the time of initial counseling, 15 percentage points higher than the average among all new clients at MMI.
AI’s appeal extends beyond writing emails or answering trivia — it is helping them locate debt counseling. This rising demand for help deserves investors’ attention, as one-quarter had at least one charged-off unsecured debt, compared with one-fifth in 2020.
Those findings fit a broader pattern of households struggling to keep up with loan payments. The Federal Reserve’s 2025 Survey of Consumer Finances found 19.6% of borrowing families reported falling behind during the preceding year, versus 12.2% in 2022.
When Consolidation Adds Another Bill
Personal loans are becoming more prominent in MMI’s caseload. Among new clients, 48% carried one in the third quarter, versus 35% in 2020. Average balances increased 11.5% in a year to $19,300.
MMI consumer finance analyst Ted Rossman warns that consolidating balances can backfire when borrowers rebuild credit-card debt before repaying the consolidation loan.
Consider a hypothetical borrower moving $15,000 from credit cards into a personal loan. If that borrower subsequently adds $5,000 to the cards without reducing the loan principal, total debt reaches $20,000. The original balance changed addresses; the household’s obligations grew by one-third.
A lower interest rate can help, but refinancing cannot permanently repair a budget whose expenses exceed income. Even record household income can coexist with financial strain when gains are unevenly distributed.
Follow Repayment Capacity, Not Just Sales
For investors, the risk runs in two directions. Retailers can lose purchases as debt payments absorb customers’ cash. Lenders can report growing loan balances while accumulating borrowers who will struggle to repay.
My investing thesis is straightforward: favor businesses whose earnings do not require increasingly stretched customers to borrow more.
For lenders, compare delinquency rates, credit losses, and loan growth across competitors. Faster lending deserves little applause if losses accelerate faster. For retailers, examine sales alongside margins and operating cash flow. Discounts that preserve revenue while eroding profits offer shareholders little comfort.
Households may also direct extra cash toward savings and debt repayment instead of shopping. A healthier family balance sheet need not produce an immediate sales rebound.
The same discipline applies to valuation. A cheaper consumer stock is not automatically a bargain if its earnings estimates still assume customers have money they no longer possess. Compare the price with profits the business can sustain under restrained spending, rather than a hoped-for recovery.
Key Takeaway
The $1 billion milestone makes repayment capacity worth closer scrutiny. Avoid paying growth-stock valuations for a consumer rebound that requires another round of borrowing. Favor profitable businesses with manageable debt and customers who can afford their purchases. Today’s financed sale only creates lasting value when tomorrow’s payments arrive.
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After two decades of patrolling the dark corners of suburbia as a police officer, Rich Duprey hung up his badge and gun to begin writing full time about stocks and investing. For the past 20 years, he’s been cruising the markets looking for companies to lock up as long-term holdings in a portfolio while writing extensively on the broad sectors of consumer goods, technology, and industrials. Because his experience isn’t from the typical financial analyst track, Rich is able to break down complex topics into understandable and useful action points for the average investor. His writings have appeared on The Motley Fool, InvestorPlace, Yahoo! Finance, Money Morning, and, of course, 24/7 Wall St. He has been featured in both U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, and USA Today.
