According to the CFP Board of Standard’s Debt and New Year’s Resolutions Report, prioritizing debt reduction is at the top of the list for Americans in 2025. It’s hardly surprising when you consider that household debt has hit unprecedented levels. As delinquencies climb and new policies from the presidential administration introduce financial unpredictability, many are finding themselves in choppy waters.
Bruce McClary, senior vice president at the National Foundation for Credit Counseling, poses the question everyone’s asking: "How will economic conditions influence their ability to make a comeback?"
To get some clarity, we consulted experts on what factors could significantly affect debt and how individuals might strategize to tackle it head-on.
1. Tariffs
Earlier this year, President Donald Trump rolled out tariffs targeting Mexico, Canada, and China. This led to some tit-for-tat measures from these countries against U.S. goods, though some tariffs have been temporarily halted. Despite the constant changes, consumers should brace for an uptick in prices across many products and services.
“These tariffs involve our three largest trading partners, so nothing feels secure,” explains Kimberly Watkins, a financial planning professor at the University of Georgia. “Especially affected will be everyday consumer items like agriculture products, including fresh fruits and vegetables.”
According to Watkins, the spiral in costs will likely hit low to moderate-income households the hardest, potentially pushing these consumers further into debt as they resort to credit cards for essentials. Additionally, she predicts price hikes in electronics, appliances, clothing, toys, and vehicles.
The Trump administration, however, stands by the tariffs as a necessary step for fairer trade practices. Scott Bessent, Treasury Secretary, articulated this stance by stating that "the core of the American Dream is about prosperity, upward mobility, and financial security—not access to cheap goods."
2. Interest Rates
Interest rates on credit cards are near historical peaks, with an average nearing 23%, notes McClary. This can severely strain budgets and trap individuals in prolonged debt cycles, especially when only minimum payments are possible.
The federal funds rate, governed by the Federal Reserve to control inflation, directly impacts the rates banks charge. Yet, McClary points out that previous cuts in Fed rates haven’t considerably lowered credit card rates, affecting the lending industry widely.
However, there is a positive angle: the high-rate environment can bolster returns on savings. This means one could potentially build an emergency cushion more swiftly, thereby reducing the need to accrue more debt. Keep an eye on any changes from the Fed and legislative actions; recently, a House bill with bipartisan backing was introduced to cap credit card interest rates at 10%.
3. The Future of the Consumer Financial Protection Bureau (CFPB)
The role of the CFPB is pivotal in shielding consumers from unjust lending and debt collection practices. It has facilitated over $21 billion in compensation and relief for consumers. Yet, its future is in question.
A new Senate bill proposes to restrict the CFPB director from accessing funds, citing overreach in regulation. “Without funding, the agency’s ability to protect consumers diminishes,” warns Mike Litt from the U.S. Public Interest Research Group. Additionally, resolutions might undo recent CFPB rules, including efforts to curb overdraft fees from major banks and credit unions.
4. Your Tax Return
With tax day looming on April 15, owing money could thrust you further into debt. If faced with a hefty tax bill, consider pursuing relief options such as IRS payment plans. Alternatively, if you’re anticipating a refund, McClary suggests using it to clear high-interest debts such as credit cards.
How to Manage Your Debt
Tighten Your Budget
Juggling debt repayments and rising living costs can be burdensome. McClary recommends revisiting your budget to find a financial buffer, enabling you to handle inevitable price hikes. By reevaluating spending habits, you can ensure that necessities remain prioritized. Watkins also advises reinforcing your emergency fund and, when necessary, seeking government assistance.
Call Your Creditors
Watkins suggests reaching out to creditors to negotiate lower interest rates or defer payments temporarily. Even McClary recently contacted his credit card issuer, which offered options between a slight permanent APR reduction or a temporary 0% rate. “It doesn’t hurt to ask,” he adds.
Talk to a Credit Counselor
If budgeting or creditor arrangements don’t suffice, other debt relief options like consolidation loans, balance transfers, or even bankruptcy could be considered. Credit counseling agencies can evaluate your situation and suggest solutions, often starting with a free initial session, says McClary. "You can then decide whether professional guidance is necessary or if you can manage independently," he concludes.
