Cash-poor Americans paid $8 billion more for loans last year. Here’s how to avoid hidden costs

For millions of Americans living paycheck to paycheck, borrowing has become a necessary survival tool. In other words, they are “cash poor,” which refers to consumers with limited savings who find themselves strapped for cash when faced with an emergency expense.

This past year, 2024 included rising inflation, higher prices at the grocery store and gas stations, and stagnant wages. When medical, utility bills, or car repairs arise, many have little choice but to turn to credit cards, payday loans, or Buy Now, Pay Later (BNPL) services to help pay for everyday needs. But what often feels like a lifeline comes with hidden costs that can push households further into financial instability, mental instability, and even crime.

Cash-poor consumers aren’t just the working class–middle-class Americans, including those with college degrees, those who own homes, and those who have six-figure incomes—are, too. One in seven cash-poor Americans makes over $75,000 a year.

This troubling trend from 2023 to 2024 hasn’t improved, and it is about to get far worse in 2025 now that the holidays are over and consumers are showing an overreliance on credit cards with high rates to buy gifts for their friends and family. A new report from the Federal Reserve Bank of New York shows credit card debt nationwide approaching $1.17 trillion, the highest level on record since at least 2004. On top of that, the National Retail Federation projected that holiday spending will reach a new record despite not truly outpacing inflation. This can only mean one thing: Consumers are going to take on more debt.

New findings from the Cash Poor Report, developed with leading research institutions including the Global Black Economic Forum, Pace University, Aspen Institute, and the Financial Security Program, offer a stark look at the borrowing landscape today. Despite a slight decline in unplanned expenses (from $1,900 in 2023 to $1,825 in 2024), the actual costs of borrowing continued to rise.

So, while people need to borrow less, it is costing them more. If that sounds like it shouldn’t add up, you’re right. It all comes down to the total true cost a consumer pays which includes fees in addition to the APR or interest like late fees or penalty fees.

Subprime credit cards alone now account for $19.6 billion in aggregate fees, an $8 billion increase from last year. Payday loans, meanwhile, cost Americans $6.7 billion annually, driven by origination and penalty fees that can reach up to 67% of the borrowed amount.

The data also continues to show that technology-enabled options like BNPL, Earned Wage Access, and Peer 2 Peer Lending continue to be significantly more affordable than traditional options like credit cards or payday loans, which begs further questions for heightened regulatory scrutiny. For example, in 2023 the aggregate borrowing costs from P2P lending fell from $1.3 billion in 2023 to $1 billion in 2024, a welcome 23% decline in the cost that hits vulnerable consumers.

These findings illuminate an urgent problem: The current borrowing system is stacked against the people who need it most and the technology providers with more advanced solutions. Borrowers are paying a steep price to manage their lives—often out of desperation rather than choice. This environment doesn’t just perpetuate financial instability; it actively widens the affordability gap.

“The rising costs of living are driving more people to take out loans and seek additional support just to make ends meet.,” said Alphonso David, President and CEO of the Global Black Economic Forum. “With hidden fees continuing to increase the burden on consumers, we must do everything in our power to educate, inform, and advocate for consumers to have options that are fair and transparent.”

The real reason borrowing costs keep rising

The problem lies in the fine print and traditional financial products. Traditional metrics like Annual Percentage Rate (APR) fail to capture the full picture. Late fees, origination fees, penalties, and even annual fees are excluded from the calculation, leaving borrowers unaware of the true costs until it’s too late. The average borrower, already stretched thin, may end up paying 48% more than they initially borrowed when using subprime credit cards or over 30% on payday loans. The traditional system is broken.

Consumers need to demand transparency from lenders but also better technology-based options. Instead of relying on outdated measures like APR, borrowers should look for metrics that reflect the Total Cost Rate (TCR)—the complete sum of fees, interest, and penalties associated with a loan. This simple shift in perspective can help people make more informed choices, avoid predatory lending traps, and minimize long-term financial damage.

But awareness is only the first step. Borrowers must also re-evaluate their options and seek out alternatives that better suit their needs. This could mean leaning on technology options, and community resources, seeking financial counseling, or even negotiating payment plans before resorting to loans that come with punitive fees.

The affordability gap is growing

The findings from the report highlight an uncomfortable truth: Financial systems often profit from the most vulnerable cash-poor consumers. Smaller loan amounts also became more popular in 2024, suggesting that those turning to options like subprime credit cards and payday loans were doing so out of true necessity. While regulatory reform is essential, the urgency of this issue demands immediate action from both consumers and financial institutions.

How consumers can take control

Calculate the total cost of borrowing first: Before borrowing, ask for a clear breakdown of all fees and interest in all scenarios including being late, paying over time, and paying in lump sum. What may seem like a small loan can balloon into a significant debt burden when penalties and fees are factored in over time.

Explore low-cost alternatives: Look into community lending programs, earned wage advances, or peer-to-peer lending options. While these still have costs, they’re often more affordable than traditional options. The financial industry needs to embrace innovation and fintechs as they are the cheapest way to borrow.

Borrow smart, not desperate: Avoid high-cost options like payday loans and subprime credit cards unless there is no other option. If you must use them, have a clear repayment plan that pays the full lump sum as fast as possible to minimize fees.

Advocate for change: Push for transparency in lending practices and technology-driven solutions that better suit your needs. Demand that lenders adopt metrics that reflect the true total cost and advocate for stronger consumer protection policies that address predatory fees. Advocate for solutions that restore the power and control to the borrower versus the lender.

Borrowing shouldn’t be a trap, it should be a bridge. As borrowing costs continue to rise, the responsibility falls on all of us—borrowers, financial institutions, and policymakers alike—to demand a system that prioritizes transparency, fairness, and competition. For cash-poor consumers, this means taking the time to understand the full picture before borrowing and seeking out options that won’t leave them worse off in the long run.

Cash-poor consumers are eager to improve their financial standing. Now is the time to rethink the cost of borrowing, not just for those who are struggling today but for the financial health of all Americans and the economy.