Lower-Income Paycheck-to-Paycheck Consumers May Find Scant Relief From Rate Cuts

The Fed’s kept rates steady.

The Fed still sees three cuts to interest rates on the table this year.

And none of it may be enough to keep the paycheck-to-paycheck consumer — especially lower-income and credit-marginalized households — from continuing to feel the pinch of everyday life.

As reported by sites such as The Wall Street Journal this week, low-income consumers have been finding it harder to become homeowners, and the cost of food and other essentials continue to bite into paychecks and pandemic-era savings. Delinquency rates on debt that has been carried by lower-earning households have been rising faster than their higher-earning counterparts.

PYMNTS Intelligence found that unexpected expenses have been hampering financial progress for many consumers, but particularly so for the credit-marginalized consumers who have found their access to traditional credit products to be volatile and challenging.

As detailed in the report done in collaboration with Sezzle at the end of the year, unexpected expenses strained savings levels, as 56% of all consumers in our study had a costly and unexpected expense in the past year, averaging $5,500. As many as 8 in 10 faced unexpected expenses that were as much as or more than their current average savings of $4,400.

Where Inflation, Poor Credit Hit Hardest

The credit-marginalized consumers make up a significant percentage of the U.S. economy. Nearly a third of consumers have faced credit insecurity in the past year. A separate PYMNTS Intelligence/Sezzle report detailed that 46% of credit insecure consumers could not get more credit due to their credit scores. And 86% of those consumers live paycheck to paycheck.

All told, an estimated 63.5 million consumers are credit marginalized, and nearly 17 million are credit avoidant and have entirely given up on credit. A third of consumers earning less than $50,000 annually are credit marginalized, nearly two-third are credit avoidant. Half of these consumers and households have FICO scores below 650 — or have no credit scores at all. Credit marginalized consumers, the data tells us, are more than twice as likely to resort to high-interest loans as other borrowers.

They are also about twice as likely to face difficulty qualifying for new credit products. More than two thirds of these consumers have at least one credit product with a payment that is past due — which we note leads to a vicious cycle of trading off between debt obligations, paying for essentials, and never really getting ahead.

The rate cuts won’t make the debt that’s already not being paid in a timely manner suddenly affordable, and perhaps the damage has already been done.