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Consumers spend more than $1 trillion on interest payments, largely due to increasing credit card debt

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Credit card debt makes up half of all interest paid in the last quarter of 2023.  (iStock)

Interest payments for U.S. consumers are through the roof. Last quarter, consumers spent a record-high $1.1 trillion on interest payments alone, reported Quartz, using data from the U.S. Bureau of Economic Analysis (BEA). 

Over half of those interest payments were not related to mortgage debt. Mortgages often have some of the highest interest over the life of the loans. 

The “personal interest payments” line of BEA’s report shows that $563.2 billion of the $1.1 trillion was non-mortgage related interest.

“The dominance of the 15-30-year fixed-rate mortgage has played a significant role in blunting the impact of higher rates on aggregate household debt service,” head of U.S. regional economics at the credit rating agency Fitch, said.

“However, the sharp increase in credit card rates and the resumption of student loan payments will drive non-mortgage household debt service to historic highs in 2024.”

Credit cards have some of the highest interest rates outside of payday loans, with the average interest rate sitting at 22.8% as of 2023.

To get yourself out of your high-interest debt, consider consolidating it into a personal loan with a lower interest rate. You can also plug in some simple information into Credible’s free online tool to determine if a debt consolidation loan is your best option.

CONSUMER SPENDING AND DEBT ARE UP AS US ECONOMY BEGINS REBOUND

Credit card debts rose more in 2023 than auto loans, student loans

In 2023, credit card debt balances rose more than many other loan types. Credit card balances increased by $50 billion and are now at $1.13 trillion — a 4.6% increase, according to data released by the Federal Reserve Bank of New York.

“We saw a meaningful rise in the amount of consumer borrowing, mostly in the form of unsecured revolving credit, like credit cards.” Rob Haworth, a senior investment strategy director at U.S. Bank Wealth Management, said.

While total auto loan balances are higher than credit card debt, they rose by just $12 billion last year, much lower than credit card debt. Student loans, on the other hand, stayed relatively flat with a $2 billion increase in the last quarter of 2023.

Retail cards and other consumer loans also significantly added to the total debt last year, rising by $25 billion, the Federal Reserve Bank reported.

“As inflation became a burden and government payments ended, consumers were willing to take on more debt,” Matt Schoeppner, a senior economist at U.S. Bank, said.

If your credit card debt is becoming too much of a burden, a personal loan can help make your monthly payment more affordable. If you’re interested in consolidating or refinancing debt, it can help to have experienced loan officers on your side. Visit Credible to get all your loan consolidation and refinancing questions answered.

CREDIT CARD BALANCES SURGE PAST TRILLION DOLLAR MARK AS AMERICANS STRUGGLE TO BUILD SAVINGS

Renters deal with higher credit card debt than homeowners

The Americans who deal with the highest amounts of credit card debt are typically renters and lower income borrowers, AP News reported.

Inflation is to blame in many ways. Homeowners and wealthier individuals have the savings cushion to withstand times of high inflation, while renters and low-income earners don’t.

While inflation brought higher housing prices — great for sellers — it also raised the cost of many goods and rental costs, which has caused many renters to put their bills on high-interest credit cards.

The median rent across the country reached $1,712 in January, up by 18.3% from four years ago, according to Realtor.com. Although prices have been dropping slightly since the height of the pandemic, they’re still too high for many.

If you’re struggling to make ends meet and tackle your debt once and for all, a personal loan with a low interest rate can help. If you would like to get a sense of what debt consolidation loan options are available to you, visit Credible to compare rates and lenders.

HIGH DEBT IS CAUSING MORE CONSUMERS TO LIVE PAYCHECK-TO-PAYCHECK

Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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Tariffs may raise much less than White House projects, economists say

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President Donald Trump speaks before signing executive orders in the Oval Office on March 6, 2025.

Alex Wong | Getty Images

President Donald Trump says that tariffs will make the U.S. “rich.” But those riches will likely be far less than the White House expects, economists said.

The ultimate sum could have big ramifications for the U.S. economy, the nation’s debt and legislative negotiations over a tax-cut package, economists said.

White House trade adviser Peter Navarro on Sunday estimated tariffs would raise about $600 billion a year and $6 trillion over a decade. Auto tariffs would add another $100 billion a year, he said on “Fox News Sunday.”

Navarro made the projection as the U.S. plans to announce more tariffs against U.S. trading partners on Wednesday.

Economists expect the Trump administration’s tariff policy would generate a much lower amount of revenue than Navarro claims. Some project the total revenue would be less than half.

Roughly $600 billion to $700 billion a year “is not even in the realm of possibility,” said Mark Zandi, chief economist at Moody’s. “If you get to $100 billion to $200 billion, you’ll be pretty lucky.”

The White House declined to respond to a request for comment from CNBC about tariff revenue.

The ‘mental math’ behind tariff revenue

There are big question marks over the scope of the tariffs, including details like amount, duration, and products and countries affected — all of which have a significant bearing on the revenue total.

The White House is considering a 20% tariff on most imports, The Washington Post reported on Tuesday. President Trump floated this idea on the campaign trail. The Trump administration may ultimately opt for a different policy, like country-by-country tariffs based on each nation’s respective trade and non-trade barriers.

But a 20% tariff rate seems to align with Navarro’s revenue projections, economists said.

The U.S. imported about $3.3 trillion of goods in 2024. Applying a 20% tariff rate to all these imports would yield about $660 billion of annual revenue.

“That is almost certainly the mental math Peter Navarro is doing — and that mental math skips some crucial steps,” said Ernie Tedeschi, director of economics at the Yale Budget Lab and former chief economist at the White House Council of Economic Advisers during the Biden administration.

Trade advisor to U.S. President Donald Trump Peter Navarro speaks to press outside of the White House on March 12, 2025 in Washington, DC. 

Kayla Bartkowski | Getty Images

That’s because an accurate revenue estimate must account for the many economic impacts of tariffs in the U.S. and around the world, economists said. Those effects combine to reduce revenue, they said.

A 20% broad tariff would raise about $250 billion a year (or $2.5 trillion over a decade) when taking those effects into account, according to Tedeschi, citing a Yale Budget Lab analysis published Monday.  

There are ways to raise larger sums — but they would involve higher tariff rates, economists said. For example, a 50% across-the-board tariff would raise about $780 billion per year, according to economists at the Peterson Institute for International Economics.

Even that is an optimistic assessment: It doesn’t account for lower U.S. economic growth due to retaliation or the negative growth effects from the tariffs themselves, they wrote.

Why revenue would be lower than expected

Tariffs generally raise prices for consumers. A 20% broad tariff would cost the average consumer $3,400 to $4,200 a year, according to the Yale Budget Lab.

Consumers would naturally buy fewer imported goods if they cost more, economists said. Lower demand means fewer imports and less tariff revenue from those imports, they said.

Tariffs are also expected to trigger “reduced economic activity,” said Robert McClelland, senior fellow at the Urban-Brookings Tax Policy Center.

More from Personal Finance:
Economists say ‘value-added taxes’ aren’t a trade barrier
Tariffs are ‘lose-lose’ for U.S. jobs and industry
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For example, U.S. companies that don’t pass tariff costs on to consumers via higher prices would likely see profits suffer (and their income taxes fall), economists said. Consumers might pull back on spending, further denting company profits and tax revenues, economists said. Companies that take a financial hit might lay off workers, they said.

Foreign nations are also expected to retaliate with their own tariffs on U.S. products, which would hurt companies that export products abroad. Other nations may experience an economic downturn, further reducing demand for U.S. products.

Tariffs could be a major rewiring of the domestic and global economy, says Mohamed El-Erian

“If you get a 20% tariff rate, you’re going to get a rip-roaring recession, and that will undermine your fiscal situation,” Zandi said.

There’s also likely to be a certain level of non-compliance with tariff policy, and carve-outs for certain countries, industries or products, economists said. For instance, when the White House levied tariffs on China in February, it indefinitely exempted “de minimis” imports valued at $800 or less.

The Trump administration might also funnel some tariff revenue to paying certain parties aggrieved by a trade war, economists said.

President Trump did that in his first term: The government sent $61 billion in “relief” payments to American farmers who faced retaliatory tariffs, which was nearly all (92%) of the tariff revenue on Chinese goods from 2018 to 2020, according to the Council on Foreign Relations.

The tariffs will also likely have a short life span, diluting their potential revenue impact, economists said. They’re being issued by executive order and could be undone easily, whether by President Trump or a future president, they said.

“There’s zero probability these tariffs will last for 10 years,” Zandi said. “If they last until next year I’d be very surprised.”

Why this matters

The Trump administration has signaled that tariffs “will be one of the top-tier ways they’ll try to offset the cost” of passing a package of tax cuts, Tedeschi said.

Extending a 2017 tax cut law signed by President Trump would cost $4.5 trillion over a decade, according to the Tax Foundation. Trump has also called for other tax breaks like no taxes on tips, overtime pay or Social Security benefits, and a tax deduction for auto loan interest for American made cars.

If tariffs don’t cover the full cost of such a package, then Republican lawmakers would have to find cuts elsewhere or increase the nation’s debt, economists said.

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Investors hope April 2 could bring some tariff clarity and relief. That may not happen

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Cliff Asness’s AQR multi-strategy hedge fund returns 9% in the first quarter during tough conditions

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Cliff Asness.

Chris Goodney | Bloomberg | Getty Images

AQR Capital Management’s multistrategy hedge fund beat the market with a 9% rally in the first quarter as Wall Street grappled with extreme volatility amid President Donald Trump’s uncertain tariff policy.

The Apex strategy from Cliff Asness’ firm, which combines stocks, macro and arbitrage trades and has $3 billion in assets under management, gained 3.4% in March, boosting its first-quarter performance, according to a person familiar with AQR’s returns who asked to be anonymous as the information is private.

AQR’s Delphi Long-Short Equity Strategy gained 9.7% in the first quarter, while its alternative trend-following offering Helix returned 3%, the person said.

AQR, whose assets under management reached $128 billion at the end of March, declined to comment.

The stock market just wrapped up a tumultuous quarter as Trump’s aggressive tariffs raised concerns about an severe economic slowdown and a re-acceleration of inflation. The S&P 500 dipped into correction territory in March after hitting a record in February.

For the quarter, the equity benchmark was down 4.6%, snapping a five-quarter win streak. The tech-heavy Nasdaq Composite lost 10.4% in the quarter, which would mark its biggest quarterly pullback since a 22.4% plunge in the second quarter of 2022.

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