The American consumer is tapped out. Grocery prices are bananas, housing prices are obscene, out-of-pocket medical expenses are absurd, and child care is impossible to afford, if you can find it. To keep up with the basics, let alone the Joneses, American consumers have been charging more and more to their cards. Credit-card balances stand at an all-time high of $1.2 trillion, up more than 7 percent year-on-year, and the share of borrowers who are late on their payments has reached its highest point since the aftermath of the Great Recession. Serious delinquency rates are climbing, particularly among consumers under the age of 40.

High costs are weighing down working-class families, while driving big rewards to rich ones. Over the past few decades, the credit-card market has quietly transformed into two credit-card markets: one offering generous benefits to wealthy Americans, the other offering expensive debt to the poor, with the latter subsidizing the former. While balances are compounding at the highest average APR in decades, a brutal 21.5 percent, the haves are not just pulling away from the have-nots. The people swiping their cards to pay for food and gas are also paying for wealthy cardholders’ upgrades to business class.

In the credit-card industry, the well-to-do are known as transactors. They pay off their balance in full every month, avoiding late fees and interest charges. They use credit cards as a convenient payment method, and as a way to earn travel points, cash back, airport-lounge vouchers, seat upgrades, and other goodies. Given how valuable these rewards are, transactors make money by spending money. “If you’re spending $100,000 a year, you’re getting maybe $1,500 back in terms of points or cash,” Aaron Klein of the Brookings Institution told me. “You’re not paying taxes on that. It’s worth closer to $2,500 or $3,000 a year in taxable income.” (That’s double the average worker’s weekly earnings.)

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Credit-card companies compete intensely for transactors’ business, Klein explained. These customers rarely default. They rack up huge monthly charges, with firms such as Chase, Citi, American Express, and Capital One skimming a share of their spending. They travel often, allowing credit-card companies to make lucrative deals with airlines and hotel chains.

In contrast, the have-nots are known as revolvers. Revolvers are subprime borrowers who use credit cards as a payment tool and as a short-term loan, to cover surprise expenses and groceries the week before payday. Such customers tend to take out no-frills cards, without lavish cash-back rewards and travel points. They also tend to carry a balance from month to month, and sometimes from month to month to month to month.

“When you talk to rich people who pay off their balance, they think that credit-card companies are losing money on them, and they’re the ones subsidizing the people who carry a balance,” Klein explained. “It’s the exact opposite.”

Rich families make out in two ways. First, the “swipe” or “interchange” fees that card networks and banks assess on retail businesses serve as a tax on poor families, who disproportionately pay with debit cards and cash. Most grocery stores and online shops charge their customers the same amount for an item, whether the customer pays with a debit card, cash, a credit card, a check, or a Venmo transfer. Accepting cash costs the retailer nothing. Accepting a debit card issued by a large bank costs it 0.05 percent, plus some change. Accepting a basic credit card costs perhaps 1.5 percent, and a fancy rewards card as much as 4 percent. In 2023, these swipe fees amounted to more than $224 billion, driving up retail prices by $1,700 a year for the average family. Everybody pays more for their goods; only fancy cardholders get juicy perks and cash returned to them.

Second, transactors benefit from the late fees and interest charges accumulated by revolvers, which credit-card companies use to help finance their rewards programs. This has proved particularly true in the past few years, as high prices and high interest rates have increased revolvers’ debt burdens.

A strong economy with a brutal cost-of-living crisis is a great economy for the credit-card industry, it turns out. The average balance carried over month-to-month has risen; interest rates have risen; and card issuers have pushed their APRs far beyond prime rates. As a result, the revenue credit-card firms make from interest payments has ballooned from $76 billion in 2020 to $170 billion in 2024, and rewards cards have gotten more rewarding. The industry argues that swipe fees, not interest and penalties on poorer customers, finance its cash-back and travel programs, Ted Rossman of Bankrate, the financial data and news site, told me. But he does not “totally buy that.” It’s all “part of the calculation.”

Now the economy seems to be slowing down: President Donald Trump’s trade war is increasing retail costs, uncertainty is leading businesses to pull back on investment, and firms are hiring fewer workers. Families are spending as much as they can afford, and struggling with mounting, expensive debt. “People take on credit-card debt for practical reasons,” Rossman told me. “That’s a tough cycle to break when the average interest rate is 20 percent.”

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Rossman noted that high-income families were beginning to look more like working-class families in the credit-card data, with some transactors becoming revolvers. Three in five households credit-card debtors making more than $80,000 annually have been carrying a balance for more than a year, he said. Seriously delinquent balances are increasing, as is the share of loans that some card companies consider unrecoverable. Investors have noticed: The price of shares in American Express, Discover, Capital One, and other lending companies have dropped more than the broader market. Politicians have noticed too: A bipartisan House bill would cap credit-card interest rates at 10 percent, and a Senate proposal would lower swipe fees.

The legislation could help reduce borrowing costs and retail prices for millions of families, though Rossman noted that he expected credit-card issuers to raise fees to make up for the lost revenue. In the meantime, with markets swooning, card companies are offering fewer cards to subprime borrowers. This isn’t great news. Relying on expensive debt, and paying fees that subsidize richer card users, is bad enough for poor Americans. Not having a credit card to fall back on might be worse.