Debt Grows, Savings Shrink and BNPL Fills the Gap

The pile of household debt keeps growing.

According to the Federal Reserve’s latest report this week, Americans added $197 billion in new debt in the third quarter of 2025, bringing total household balances to $18.59 trillion, up 1.1% from the prior quarter and 3.6% from a year earlier.

Mortgage balances rose $137 billion to $13 trillion, while credit card debt increased $24 billion to an all-time high of $1.23 trillion.

A Delinquency Drift

Debt performance is weakening at the margins.

The Fed reported that 4.5% of all outstanding balances are now delinquent, the highest share since 2020, with serious delinquencies (90 days or more past due) holding at 3%.

Credit card and auto-loan delinquencies climbed, particularly among younger borrowers.

Bankruptcy filings rose 8% compared with Q1, and more consumers now have third-party collection accounts listed on their credit reports.

Debt growth was steepest among younger adults. Consumers under 30 now owe $1.18 trillion, and nearly 5% of their balances are seriously delinquent, showing how rising costs and tighter credit conditions are straining entry-level households.

Savings Buffers Are Shrinking

PYMNTS Intelligence research offers a window into why more Americans are turning to credit.  In the “Why Paycheck-to-Paycheck Consumers Can’t Weather a $2,000 Shock” report, more than half of surveyed consumers said they would struggle to handle an unexpected $2,000 expense without borrowing or cutting essential spending.

Roughly 42% live paycheck to paycheck and have trouble paying monthly bills. Even among those earning more than $100,000 annually, 1 in 4 would still find it difficult to absorb an unplanned cost.

Complementary findings in “Rising Prices Leave a Third of Consumers Saving Less” show elevated prices have eroded emergency funds across income brackets. That erosion is reshaping how consumers manage short-term liquidity, increasingly through installment payments instead of revolving credit lines.

BNPL as a Tool for Control

As PYMNTS CEO Karen Webster wrote in her column, “The BNPL Story Everyone’s Getting Wrong,” buy now, pay later is not about spending sprees. It is about control. Webster noted that consumers view installment financing as “a rational response to an unpredictable economy,” a budgeting strategy rather than a symptom of excess.

PYMNTS Intelligence data show users increasingly rely on BNPL to manage the timing of payments for groceries, apparel and other everyday essentials. The transparency of fixed installment plans, with no compounding interest and clear payoff dates, makes them appealing as credit card rates hover near record highs.

Affirm and Sezzle Reflect the Shift

Earnings from major BNPL players reinforce the trend.

In its most recent quarter, Affirm said active consumers and cardholders reached record levels as usage expanded across discretionary and everyday categories. CEO Max Levchin told investors that the Affirm Card’s growth “shows consumers want a predictable, transparent alternative to revolving credit.”

Sezzle topped $1 billion in quarterly volume. The company said average order values and repayment rates remain steady, suggesting consumers are managing short-term obligations prudently despite broader credit stress.

BNPL as Financial Safety Valve

Together, the data and the earnings point to a clear dynamic.

Consumers are not simply adding more debt; they are also searching for flexibility.  For households caught between inflation and high rates, BNPL functions as a safety valve that helps them preserve cash flow and maintain spending stability.

As Webster wrote, credit innovation has become a tool for financial control. In that sense, BNPL is not replacing credit cards so much as redefining and serving as an adjunct to how households manage obligations in a volatile economy.