Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / How Your Raise Is Finally Beating Credit Card Debt Payments
Transcript
- Lucas: So the latest numbers are out for May, and average hourly earnings for private workers hit $37.50 an hour. That's up from $37.41 in April, and up about 3.2 percent from a year ago. Luna: 3.2 percent — that's actually a tick above core inflation, right? Core CPI was running around 2.9 percent year-over-year in May. Lucas: Exactly. So for the first time in a while, the typical raise is outpacing the stuff we buy every day — food, energy stripped out, the basket. But today I want to look at a different kind of price: the price of carrying credit card debt. Luna: Oof. That's the one that really stings. I've got friends who are still paying off holiday spending from last year. Lucas: And the numbers explain why. Credit card APRs have been hovering around 22.5 percent on average. That's down from the peak near 24 percent in 2023, but still painfully high. The question is: is your raise finally big enough to make a dent in those interest payments? Luna: So we're comparing wage growth to the cost of debt. That's an interesting frame. Lucas: Right. And the answer depends on how you look at it. If you take the average hourly wage of $37.50 and assume a 40-hour week, that's about $1,500 a week. The median usual weekly earnings are a bit lower — $1,204 as of early 2025, but that's also up about 3.9 percent year-over-year. Luna: So wages are growing around 3 to 4 percent, and credit card interest rates are flat to slightly down. That means the real cost of carrying debt is shrinking, at least in relative terms. Lucas: Exactly. Let's put some numbers on it. Say you carry an average balance of $6,000 — that's about the national average for households with credit card debt. At 22.5 percent APR, you're paying roughly $1,350 a year in interest. If your weekly paycheck went up 3.5 percent, that's an extra $42 a week, or about $2,184 a year. Luna: So the raise alone covers the interest payments and then some. That's a big shift from two years ago, when wage growth was running at 4 percent but credit card rates were spiking above 23 percent. Lucas: Right. Back in 2023, the Fed was still hiking, and credit card rates were climbing faster than wages. Now, with the Fed holding steady at current levels — Kevin Warsh's first meeting as chair didn't change rates — the interest cost side has stabilized. Meanwhile, wages keep grinding higher. Luna: But I want to push back a bit. The average balance of $6,000 — that's not everyone. A lot of households carry much more than that, especially if they've been using cards to cover rent or medical bills. Lucas: That's a fair point. For someone with $15,000 in credit card debt, the annual interest is over $3,300. Their raise might only cover half of that. So the relief is real, but it's not evenly distributed. Luna: And there's the minimum payment trap. If you're only paying the minimum, which is typically 2 to 3 percent of the balance, most of that goes to interest. So a raise might just mean you pay down principal a tiny bit faster, not that you're actually getting ahead. Lucas: Yeah, the math on that is brutal. On a $6,000 balance at 22.5 percent, the minimum payment is about $120 a month. About $112 of that goes to interest. So you're paying down principal by maybe $8 a month. A raise of 3 percent on a $50,000 salary gives you an extra $125 a month take-home. That's real money, but it's competing with everything else. Luna: So the raise helps, but it's not a magic bullet. Especially if other costs like insurance or utilities are also rising. Lucas: And that's exactly the nuance. The headline is positive — wages are finally beating credit card interest costs in aggregate. But the details matter. The 10-year breakeven inflation rate, which is a market measure of expected inflation, is at 2.25 percent. That's down from where it was. So the bond market thinks inflation will stay contained, which should keep the Fed from hiking again. Luna: That's good for anyone with variable-rate debt. If the Fed cuts later this year, credit card rates might finally come down more significantly. Lucas: Exactly. And that's the scenario where your raise really starts to work for you. Lower interest costs plus higher wages equals more disposable income. But it's a waiting game. Luna: So what should listeners do with this information? I mean, if they're carrying credit card debt, is the advice any different now than it was a year ago? Lucas: I think the key takeaway is: if your raise has been outpacing inflation, don't just spend the extra money. Use it to pay down high-interest debt. Because even though the gap is closing, 22.5 percent is still extremely high. Every dollar you put toward that balance is earning you a guaranteed 22.5 percent return. Luna: And one more thing — if you're a listener who's been following our show and these wage versus price episodes have helped you think about your own finances, we just want to say that keeping this podcast ad-free and independent is something we really care about. If you've found value in what we do, you can support us at buy me a coffee dot com slash fexingo. That's all lowercase, buy me a coffee dot com slash fexingo. No pressure, just if it's something you want to do. Lucas: Yeah, it's a small gesture that helps us keep the lights on and the data flowing. And we really appreciate everyone who's already done that. Now, back to the wage story — one more data point I want to highlight. The Employment Cost Index for wages hit 177.5 in the first quarter of this year, up from 176.23. That's a 0.7 percent quarterly gain, which annualizes to about 2.8 percent. Luna: So that's a broader measure of total compensation, including benefits and bonuses. It's a bit lower than the average hourly earnings number. What does that tell us? Lucas: It suggests that while base wages are growing, total compensation might be growing more slowly because bonuses and benefits are being squeezed. That's something to watch. If companies are tightening up on perks or health contributions, the net gain for workers could be smaller. Luna: And that circles back to the credit card debt issue. If your total compensation isn't growing as fast, but your rent and food costs are still rising, that's where debt can creep in. Lucas: Right. So the headline is positive — your raise is finally beating credit card interest costs — but the fine print is still messy. For the typical worker, the math is moving in the right direction. But if you're carrying a lot of debt or if your benefits are getting cut, you might not feel it yet. Luna: And that's the story of this recovery, isn't it? The averages are good, but the distribution is uneven. Some people are finally getting ahead, and others are still treading water. Lucas: Exactly. And that's what we'll keep tracking in the months ahead. Next week, we'll look at how wages are stacking up against auto loan payments — because car prices have been doing some interesting things lately. Luna: Looking forward to it. For now, take care of yourselves and that credit card balance.