In the midst of grappling with the effects of soaring inflation, American families now face an additional financial strain - the escalating costs of carrying debt. As the Federal Reserve hiked interest rates over the past two years to curb rising prices, delinquency rates on credit cards and auto loans have reached their highest levels in over a decade. For the first time ever, the interest payments on non-mortgage debts are equally burdensome for US households as mortgage interest payments.

Unfortunately, these figures indicate a challenging reality for the millions of consumers who play a crucial role in driving the US economy. The era of high borrowing costs, while necessary to combat inflation, has its own sting that may be felt by families for years to come, particularly those who didn't secure low-rate home loans. Surprisingly, the Fed does not appear ready to slash rates until later in 2024, leaving families struggling with mounting debt.

As monthly debt payments consume a larger proportion of workers' incomes, these consumers become more vulnerable to potential economic downturns. Moreover, the high cost of borrowing impacts people's perception of their own prosperity. Recent research from the International Monetary Fund (IMF) and Harvard University highlights the significance of the elevated cost of borrowing, which isn't captured in inflation figures, in explaining the lackluster consumer sentiment, despite a slowdown in inflation and robust hiring trends among businesses.

This theory suggests that the debt burden could pose a challenge for President Joe Biden's re-election efforts, as the economy consistently remains a major concern for voters. One such voter is Nikki Cimino, a 40-year-old recruiter from Denver, who laments missing out on the ultra-low interest rates that made homeownership more affordable during the early stages of the pandemic. Cimino, burdened with a 5.25% interest rate on her mortgage and $4,000 in credit card debt, expressed frustration, stating, "I'm making the most money I've ever made, and I'm still living paycheck to paycheck. There's this wild disconnect between what people are experiencing and what economists are experiencing."

Since the pandemic, households have rapidly accrued debt at an alarming rate. Wells Fargo economists estimate that households set a new record debt level within just four years, after paying down borrowings in 2021 when interest rates were near zero. Previously, the time between debt peaks had been three times longer. Consequently, this increased debt load often comes with higher costs, with the typical credit card interest rate reaching a record high of above 22%, according to the Federal Reserve.

However, it is worth noting that many households are relatively well-positioned to manage their debt, thanks to broad wage gains and the rise in home prices that have boosted their net worth. While the share of income allocated towards debt service has increased compared to three years ago, it still remains low by historical standards. Yet, the loans and interest payments continue to strain families' spending choices.

The increasing burden of credit card debt and the struggle to make ends meet is a reality faced by Denise and Paul Nierzwicki, aged 69 and 72 respectively. The couple, who hold about $20,000 in debt spread across multiple cards with interest rates exceeding 20%, found themselves in financial distress due to job loss during the pandemic and a failed business deal. Despite Denise's 50-hour workweek at a restaurant, they are barely managing to scrape together the minimum payments for their credit card debt. The couple places the blame on President Biden and plans to vote for the Republican candidate in the upcoming elections.

Unfortunately, the Nierzwickis are not alone in their struggle. Exclusive data from the Harris Poll for Bloomberg News reveals that more than a quarter of middle-class adults with credit card payments have fallen behind in the past year. Additionally, New York Federal Reserve data indicates that credit card balances turning delinquent, being more than 30 days late, have reached an annual rate of 8.5% in the last quarter.

These high borrowing costs, and how households navigate them, present a potential risk to the overall economy. Shannon Grein, an economist at Wells Fargo, emphasizes that the rise in interest rates has put a strain on consumer spending, referring to the change as "a significant headwind to consumption." As a result, Mohsin Meghji, managing partner of M3 Partners, predicts a ripple effect on companies, as any reduction in consumer spending directly impacts their top lines. While some consumers may consider refinancing their debt once the Fed lowers rates, the uncertainty surrounding the timeline and extent of rate cuts, coupled with refinancing fees, may outweigh the benefits.

Furthermore, the reintroduction of student loan payments compounds the financial stress for many borrowers. Brittany Walling, a 29-year-old in Columbus, Ohio, has accumulated approximately $80,000 in federal student loans and $20,000 in private debt from her undergraduate and graduate degrees. In addition, Walling carries $6,000 in credit card debt, stemming from a six-month period of unemployment in 2022. Living paycheck to paycheck on her $50,000 annual salary at the public health department, Walling expresses the pressing need for change, saying, "I can't even save; I don't have a savings account."

Despite the financial hardships faced by individuals like Walling, the overall impact on the upcoming elections remains uncertain. While these economic factors shape the outlook of voters like the Nierzwickis, it is not a decisive factor for others. Swing-state voters in a February Bloomberg News/Morning Consult poll indicated that they trust former President Donald Trump more than President Biden on interest rates and personal debt.

Ultimately, the increasing debt burden poses significant challenges for US households and the broader economy. As consumers grapple with higher borrowing costs and the implications of their debt management, the effects of these factors may shape economic policies and voter sentiment in the months to come.