Consumers on Credit Treadmill More Likely to Turn to Nontraditional Loans
Reward seekers, or consumers who pay their credit and store card balances in full every month, aim to maximize benefits from their credit usage, while credit treadmill consumers, who make the minimum payment or less on their credit and store cards each month, often depend on loans to manage financial challenges.
These are findings from the PYMNTS Intelligence report “Consumers Focused on Rewards Are Less Likely to Have or Want Loans,” which examined how each group approached credit and the impact their habits had on their financial flexibility and outlook.
The Loan Gap: Reward Seekers vs. Credit Treadmill Consumers
Consumers seeking rewards held an average of 2.4 credit products, compared to 3.1 products held by credit treadmillers, marking a 29% difference, the report found. The gap was driven by the number of loans, as reward seekers typically held 0.7 traditional loans, 57% fewer than treadmillers, who averaged 1.1 loans. The disparity was more significant with nontraditional loans, with reward seekers holding 0.2 such products, while treadmillers held more than twice that amount.
The divergence suggested that reward seekers prioritized using credit cards and store cards for their rewards, such as points or miles, and generally avoided loan products, preferring to focus on their credit management within more familiar, rewarding products. Conversely, credit treadmill consumers appeared to need or want loans as tools to maintain financial stability.
Loans and the Credit Treadmill: Struggling to Achieve Financial Flexibility
Credit treadmill consumers, who often struggle to make minimum payments, were more likely to have student loans than other groups, with 21% holding them compared to 6.6% of reward seekers and 17% of cash cushion users, or consumers who pay more than the minimum but less than the full balance on their credit and store cards each month. This was partly due to education, as only 13% of credit treadmill consumers had completed a college degree, compared to 51% of reward seekers, suggesting many were burdened with student loans from incomplete degrees.
Additionally, credit treadmill consumers were more reliant on high-interest, nontraditional loans. According to the report, 13% of them had payday loans, versus 8.7% of cash cushion users and 2.9% of reward seekers. Similarly, 9.2% of credit treadmill consumers held debt consolidation loans, compared to 7.3% of cash cushion users and 2.4% of reward seekers. This increased reliance on costly loan products underscored their struggle to use credit as a financial lifeline instead of a strategic tool for rewards.
Interest in New Loans Continues to Show a Divide
When it came to pursuing new loans, reward seekers showed the least interest, looking for an average of 0.34 traditional loans and 0.4 nontraditional loans. In contrast, credit treadmill consumers showed higher interest, desiring 0.43 traditional loans and 0.68 nontraditional loans on average. Cash cushion users also showed interest, with an average of 0.43 traditional loans and 0.64 new nontraditional loans.
The disparity was noticeable in the case of debt consolidation loans. The report found that 5.2% of reward seekers expressed interest in these products in contrast to 19% of credit treadmill consumers and 18% of cash cushion users. This finding illustrated that reward seekers typically avoided loans unless they were part of a larger strategy to maximize credit rewards, whereas credit treadmill and cash cushion consumers were more likely to seek loans out of necessity.
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