Photo by SumUp on Unsplash
April 4, 2025
Are Credit Cards Losing Appeal?
A new survey finds more than two-thirds of Gen Z consumers (68%) report that credit card bills cause them stress and anxiety, while more than half (51%) say credit cards give them the “ick.”
The Morning Consult survey of about 5,400 Americans taken earlier this year and commissioned by Afterpay, a provider of buy now, pay later (BNPL) financing, comes as rising interest rates have caused APRs (annual percentage rates) on credit cards to spike.
Credit cards are also increasingly competing against emerging payment solutions, including peer-to-peer payment services such as Venmo, PayPal, and Afterpay-integrated Cash App, as well as mobile wallets such as Google Pay and Apple Pay.
Afterpay’s study found that Gen Zers primarily use debit cards (cited by 68%) and cash (67%) for payments, followed by peer-to-peer payment services (51%) and mobile wallets (50%). Only 35% actively make purchases with a credit card.
Among boomers, 68% actively make purchases with credit cards, with a lower rate of credit card usage also seen among millennials (47%) and Gen X (49%).
The caution by younger demographics over credit cards shows a strong awareness of related debt risks. Of the overall respondents, 82% consider credit cards to be “financially dangerous,” with 70% agreeing that credit cards make them feel like “theyʼre spending money they don’t have.”
Part of the fear of credit cards is a lack of understanding of complicated card terms, particularly among Gen Z (57%). Forty percent of overall credit card users (53% of Gen Zers) have been surprised by the amount of interest they pay on their bill.
One of the main benefits of using a credit card is the ability to earn cash back or travel rewards on purchases.
A recent Bankrate survey, however, found that while 80% of U.S. credit card holders make at least some effort to earn rewards, 72% carry a balance from month to month, meaning the interest charges on an unpaid balance likely outweigh those rewards.
“It doesn’t make sense to pay 20%, 25% or 30% in interest just to earn a few percentage points in cash back or travel rewards,” states Ted Rossman, Bankrate senior industry analyst.
Following the increases in interest rates, the average credit card interest rate in the U.S. is now 24.2%, up from about 16% in 2022.
The average retail credit card interest rate in September 2024, the month the Federal Reserve shifted to reducing rates, reached a record high of 30.4%, up from 24.4% in 2021, according to analysis by Bankrate.com.
Credit card delinquencies recently reached their highest levels in over a decade. Per October 2024 CivicScience data, 56% of credit card users report they have some kind of revolving credit card debt, as higher interest rates have made it harder for them to pay off their balances.
Beyond offering rewards, credit cards still hold other advantages over their main card payments competitor, debit cards, including helping an individual build credit and offering better protection against fraud. Many no longer require annual fees
Discussion Questions
Are credit cards becoming less attractive to consumers due to high interest rates and debt concerns as well as alternative payment options?
Do retail loyalty programs tied to credit cards have to be restructured or rethought?
Poll
Loading …BrainTrust
Nolan Wheeler
Founder and CEO, SYNQ
David Slavick
Co-Founder & Partner, Ascendant Loyalty
Perry Kramer
Managing Partner, Retail Consulting Partners
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Given the amount of outstanding debt on credit cards, they’re far from dead. But that tells the story: consumers have run up high debts and are anxious, so naturally this makes them more reluctant to use cards further – especially as rates remain elevated. There are also shifts with younger consumers who seem to prefer more informal credit mechanisms such as BNPL (buy now, pay later) which may cause future issues for traditional cards. I also think some of the card benefits have been diluted, which is a separate issue.
I’ve mixed feelings on this: if people are – how do we put this politely? – not bright enough to understand the (sic) “complicated card terms” then perhaps it’s better they don’t use them. OTOH, it’s hardly encouraging that someone doesn’t understand a concept like “if you pay it off (completely) each month – i.e. use it just like a Debit card – then you don’t pay any interest”, and/or lacks the discipline to actually do this. The cross generational data is interesting, but rather meaningless without comparatives to prior generations.
It isn’t a case of not being bright enough, it’s a case of societal pressures being too strong to overcome the lure of “having it now”. When financial management isn’t taught in schools, or by most parents followed by social media constantly bombarding you with the latest outfits or skin care or fun thing to do, it’s easy to rationalize that you’ll pay it off tomorrow. Not saying credit card companies aren’t taking advantage of this with complex terms and interest rates at usury levels. But it’s a multi-pronged problem rather than a lack of comprehension on the part of the consumer.
They’re handy, and some places don’t even take cash anymore
the answer varies based on the different card types. The branded Cards from V/MC/D/AX will remain very relevant for a long time. Their is no denying that there will be a continued generational shift to Debit from Credit for these branded cards. However, the footprint of private label credit cards tied to Retail Brands, (and to a somewhat lesser degree co-branded cards) will have continued success. Much of this is driven by the retailer’s ability to offer significant discounts and/or financial incentives for using the card. These discounts remain highly important to the younger generations. Additionally, These recent trends were captured during an economic upturn. With the recent downturn in the economy we will see the need for a greater reliance on the “instant” credit that Credit cards provide by extending a consumers buying power.
Credit card usage has slowed in recent years as consumers opt for digital wallets and buy now, pay later services.
Those who are wary of accumulating debt are often attracted to these alternatives because they offer more flexible payment terms and low or no interest rates. Furthermore, mobile banking apps and contactless payments have further shifted consumer preferences away from traditional credit cards.
Retail loyalty programs tied to credit cards may have to be restructured to remain effective. In an era when consumers are shifting towards digital wallets and alternative payment methods, traditional points-based systems might not be as appealing.
Keeping customers engaged may require retailers to integrate loyalty rewards with digital payment platforms or to offer more immediate, tangible benefits.
Building your credit profile for the future and/or earning incremental rewards/benefits are the primary reasons most people take out credit cards. There is the natural response to “save on today’s purchases” with an introductory % off, but that is only motivating when the basket is at a significant value whether apparel, furniture or appliances. The trends shared in the article are spot on. Easy of payment with auto-debit using your mobile wallet when linked to “checking” account will undoubtedly lead to a lower take rate for applications and usage. The concept of “hit n’ run” cardholders remains present – taking advantage of immediate savings and then post payment down to $0, the card goes in the 3rd wallet or desk drawer. It is as important as ever for businesses, card issuers and the marketing teams on both sides to work together in building more compelling reasons why to open and maintain usage – keeping the card “top of wallet”. For me personally, I love the Verizon Visa card that accrues value in a closed earn/burn design. Living in Chicago the Mileage Plus Visa card is a natural “win” with its benefits. Note, that the value proposition in the airline sector are getting much less compelling overall which is an indication as to just how challenging the payment competition is.
Credit cards are important to consumers for several reasons. First, they are a cash alternative, and if paid when the bill is received, they have no penalties or interest associated with payment. Second, for those who need a short-term “loan” on the money, the consumer doesn’t have to pay in full but must understand the cost to do so. That’s where things get a little complicated. Compliance requires a lot of “fine print” to explain the terms. Third, there are more reasons to use credit cards than their original use. They are now vehicles for bonuses, such as cash-back incentives, points, and perks. This is usually paid for by the merchant (with credit card fees), but that cost, in some instances, is being passed on to consumers. In short, the original reason for credit cards, while still valid, has additional layers of benefits and complexity than ever before.
Credit cards aren’t inherently the problem – how we’re taught to use them is. A lot of the stress and hesitation comes from a lack of financial education, not the card itself. With a better understanding of payment cycles, interest rates, and how to maximize rewards, credit cards can be a useful tool.
Retailers have long had an issue with the fees charged, with some deciding to not take American Express. A key inflection point is the decision by some (mostly small) retailers to pass on the transaction fee to the consumer. Once that practice becomes more widespread I believe more will migrate away from credit cards. Unless of course the reward systems become more robust.
With the rise of Buy Now, Pay Later (BNPL) offerings, the banking landscape is undergoing a significant shift. These flexible payment options – splitting purchases, paying in installments, or aligning payments with paydays – are all benefits that speak to the preferences of younger generations. While credit cards aren’t going anywhere, I anticipate continued decline in their usage as BNPL adoption grows.