How Different Consumers Use Credit to Make Essential Purchases

Across demographics, people rely on credit to cover essential and nonessential expenses. Some consumers use credit for a significant portion of each. For many consumers, credit is more than a convenience — it is a lifeline.

Credit can mean different things to different people. In practice, credit use encompasses everything from financially stable individuals using their credit cards as much as possible while racking up rewards to struggling individuals taking out payday loans just to get by.

However, it is not consumers’ income that is most strongly linked to this reliance; rather, it is their financial stability. We use the term “financial lifestyle” to describe whether consumers live paycheck to paycheck, and if they do, whether they struggle to pay bills. Understanding who struggling paycheck-to-paycheck consumers are is important to knowing how they use credit.

Those living paycheck to paycheck, especially those struggling to pay bills, use credit differently from more financially secure consumers. Struggling paycheck-to-paycheck consumers often face lower credit limits, and some turn to installment plans or alternatives like payday loans to make ends meet. Meanwhile, individuals not living paycheck to paycheck are more likely to use credit overall. Perhaps they are able to take advantage of more favorable terms or have credit products that offer rewards.

These are just some of the findings detailed in “Financial Lifestyles Shape Credit Reliance,” a PYMNTS Intelligence exclusive report. This edition examines how financial lifestyles influence consumers’ reliance on credit and other lending products for essential expenses. The study draws on insights from a survey of 2,298 consumers conducted from Dec. 5, 2024, to Dec. 16, 2024.

• Financially Strained Consumers Are Twice as Likely To Need Credit To Afford Necessities
• Credit Is Key to How Many Consumers Pay for Essential Expenses
• Many Paycheck-To-Paycheck Consumers Turn to Alternative Credit Products
• Read More
• Methodology

Financially Strained Consumers Are Twice as Likely To Need Credit To Afford Necessities

For many consumers, credit is the only way they can afford the goods and services they need. In fact, 21% of consumers who use credit for essential expenses would not have been able to afford the expense without credit.

Those living paycheck to paycheck with difficulty paying bills particularly show this dependence. The data shows that 43% of credit users in this group said they could not afford essential expenses without credit. This figure is more than eight times the share of credit users not living paycheck to paycheck who said the same. Similarly, struggling paycheck-to-paycheck credit users were six times as likely to say they needed credit to afford nonessentials as non-paycheck-to-paycheck credit users.

Financial lifestyle is more strongly linked to the need to use credit products to afford expenses than income. Lower-income consumers are only slightly more likely to report not being able to pay for expenses without using credit.

Credit Is Key to How Many Consumers Pay for Essential Expenses

Consumers use — if not rely on — credit for much of their spending. In fact, credit users cover approximately half their spending for both essentials and nonessentials using some form of credit.

Notably, credit users who live paycheck to paycheck with issues paying bills tend to utilize it the least. These consumers use credit for only 41% of spending on essential expenses and 43% on nonessential expenses. In contrast, consumers not living paycheck to paycheck use credit for 56% of essential and 63% of nonessential expenses. This disparity could be because financially constrained consumers may have lower credit limits or turn to credit out of necessity rather than for rewards. As a result, they may be judicious about when they use credit to cover expenses.

Consumers have used a significant portion of their credit in the past three months to pay for essentials. Among credit users who used credit for essential expenses, 44% purchased essential groceries, and 28% covered essential out-of-pocket healthcare costs. Conversely, 33% who used credit for nonessential goods purchased nonessential groceries, and 9.3% covered nonessential out-of-pocket healthcare costs.

Consumers were also more likely to use credit to pay for essential groceries than any other expense, essential or otherwise. As such, it seems many individuals are using credit as a critical component of household budgeting on top of other motivations such as rewards.

Many Paycheck-To-Paycheck Consumers Turn to Alternative Credit Products

Struggling paycheck-to-paycheck credit product users are more than six times as likely to split essential purchase payments into installments as those not living paycheck to paycheck. Nearly half of these consumers split essential expenses into installments the last time they used credit. This suggests that paycheck-to-paycheck consumers may use installments to help manage their household’s cash flow.

Consumers use various credit sources to make purchases. These include credit products designed for making purchases, such as credit cards, store cards and buy now, pay later (BNPL). However, consumers also turn to other credit products. For the purposes of this report, we refer to overdrafts, personal loans and payday loans as “alternative credit products.”

Struggling paycheck-to-paycheck consumers disproportionately use alternative credit products for necessities. In fact, these consumers utilized alternative credit sources for 31% of their essential expenses purchased with credit. This is three times the rate of credit users who do not live paycheck to paycheck. Paycheck-to-paycheck consumers who can comfortably pay their bills use alternative credit sources for 23% of their essential expenses purchased with credit. This is 2.3 times the rate of those not living paycheck to paycheck.

The gap is wide for nonessential expenses as well. Struggling paycheck-to-paycheck credit users paid for 35% of nonessential expenses via alternative credit products. Credit users not living paycheck to paycheck did the same for just 8.9% of their purchases. In other words, struggling paycheck-to-paycheck consumers use it nearly four times as often as non-paycheck-to-paycheck consumers.

Notably, financially constrained consumers see BNPL as an attractive option. Struggling paycheck-to-paycheck credit users use this option for more expenses than credit users not living paycheck to paycheck. For example, struggling paycheck-to-paycheck consumers use BNPL four times as often as for nonessential expenses as consumers not living paycheck to paycheck, at 7.7% and 1.9%, respectively.

Read More

PYMNTS Intelligence is the leading provider of information on the consumer trends driving innovation in consumer finance, digital payments and financial inclusion. To stay up to date, subscribe to our newsletters and read our in-depth reports.

• Consumers Focused on Rewards Are Less Likely to Have or Want Loans
• Interest in Mortgages Rises Among Younger, High-Income Individuals
• Boomers Are Leaving the Credit Market

Methodology

“Consumer Credit Economy: Financial Lifestyles Shape Credit Reliance,” a PYMNTS Intelligence exclusive report, is based on a survey of 2,298 consumers conducted from Dec. 5, 2024, to Dec. 16, 2024. The report explores how financial lifestyles influence consumers’ use of credit and other lending products for essential expenses. Our sample was census-balanced to reflect the U.S. population: 51% of respondents identified as women, the average age of respondents was 48 and 38% earned more than $100,000 annually.