Persistent inflation, soaring borrowing costs, and record household debt are placing increasing financial pressure on American consumers. However, some market analysts warn that traditional economic indicators may be masking the true extent of the deterioration in household finances. Matt Layton, senior vice president of consumer analytics at LegalShield, stated that persistently strong consumer spending is creating a potentially misleading picture of the U.S. economy for economists and policymakers, as more and more Americans are relying on borrowing to maintain their standard of living.

Consumer stress index hits a new high since the pandemic, rising for 27 consecutive months.

According to the latest data from LegalShield, its Consumer Stress Legal Index (CSLI) rose to 75.7 in September, the highest level since March 2020. The index rose 6.3% year-on-year and 1.5% from the end of the second quarter. More importantly, the index has recorded year-on-year increases for 27 consecutive months, the second longest consecutive record in its 24-year history, second only to the 34-month period from November 2006 to August 2009, which covered the Great Recession. Layton stated that the continued rise in financial stress is particularly worrying because it has accumulated gradually without triggering a severe economic shock that would attract the attention of policymakers and financial markets. He said this represents long-term pain for ordinary consumers.

Unlike previous crises: there was no sudden shock, only a continuous erosion of purchasing power.

Unlike the 2008 financial crisis or the COVID-19 pandemic, where financial stress increased sharply in a relatively short period, Layton explains that the current deterioration reflects a long-term erosion of household purchasing power. Consumers are increasingly spending their money well in advance each month, struggling to cope with daily expenses and recurring bills. He says, "Our data shows no indication that these issues that keep consumers sitting at the kitchen table calculating which bills they can pay and which they can postpone will improve in the short term." While the current trend bears some resemblance to the accumulation of financial stress before the Great Recession, LegalShield's report shows that this deterioration is proceeding much more slowly. In the current 27-month period, the composite index has risen 22%, compared to a 40% increase in the same 27 months from 2006 to 2009. The current index is still about 60% of its peak of 125.2 in December 2008. Layton emphasizes that LegalShield is not predicting a recession, but the similarities between the two periods suggest that financial stress can accumulate over a considerable period without immediately triggering an economic crisis .

Confidence surveys are disconnected from real behavior, and lending supports a false prosperity.

The latest report also highlights the widening gap between traditional consumer confidence surveys and actual household financial behavior. The Conference Board's Consumer Confidence Index fell to 81.9 in September, its lowest level since 2014, while more consumers reported poor rather than good household finances. Unlike indicators that rely on subjective feelings, LegalShield's index measures the actual requests for legal assistance. The company analyzes approximately 150,000 calls each month from American consumers seeking help regarding financial issues such as bankruptcy, foreclosure, and consumer finance disputes. Layton stated in the report, "Confidence surveys tell you how people feel, but our data shows people are taking action. " As more members call about losing their homes, filing for bankruptcy, or dealing with consumer debt, the pressure has shifted from worry to action. In Layton's view, one of the biggest concerns is that economists and financial markets still rely heavily on consumer spending to assess the health of the U.S. economy . Consumer spending accounts for more than two-thirds of U.S. economic activity and is a crucial indicator of growth. However, he believes that the increasing prevalence of credit channels such as buy-now-pay-later may allow households to continue spending even when their basic financial situation deteriorates. He says he firmly believes that consumer spending data is no longer sufficient to measure the financial health of the average consumer. He questioned whether this lending was artificially inflating consumer data and delaying a more significant economic adjustment. He said, "Are we just putting the problem off? Will consumer budgets finally explode at some point?"

Household debt hits record high, increasing pressure for bankruptcy and foreclosure.

The latest household debt data confirms some of these concerns. A LegalShield report, citing data from the Federal Reserve Bank of New York, shows that total U.S. household debt reached $18.77 trillion in the second quarter of 2026, an increase of $383 billion year-on-year. The annualized percentage of credit card balances transferred to severely delinquent accounts was 6.97%, roughly the same as the previous year. The consumer finance index, which tracks legal requests such as bill disputes, collections, buybacks, and creditor negotiations, rose 4.5% to 112.5 in the third quarter, about 6% higher than the level in July 2007, before the Great Recession, but still below the peak during the pandemic. The report points out that consumer finance issues contributed the majority of the quarterly increase in the composite index. Layton said that consumer finance calls surged almost overnight when the pandemic hit, but this time there was no single shock; consumer finance issues are already higher than any record during the Great Recession and continued to rise this quarter. Financial pressure in the housing market is also becoming increasingly apparent. The foreclosure index rose 14.8% year-on-year to 52.6 in September, the largest increase among the three sub-categories of the consumer stress index. Ben Farrow, a partner at LegalShield's firm Anderson Williams and Farrow, says many homeowners seeking help aren't spending recklessly, but rather are overwhelmed by rising essential expenses. He says, "The homeowners who call us budgeted, did the right things, but inflation eroded their income, and then insurance doubled. They weren't buying luxury cars and steaks; things were just too expensive, and there wasn't much left in their piggy banks."

Bankruptcy filings are expected to continue rising, and financial problems may become a hidden worry for next year.

Deteriorating household financial conditions have also raised concerns about a further rise in personal bankruptcies. The bankruptcy index averaged 41.0 in the third quarter, a 14.3% year-on-year increase, the highest quarterly average since the end of 2019, and marking the 17th consecutive quarter of year-on-year increases—the longest streak on record. The report points out that the bankruptcy index has more than doubled since the Federal Reserve began raising interest rates in March 2022. Layton said that historical data shows the bankruptcy index leads federal court filings by about two quarters, and the data predicts that bankruptcy applications will continue to rise until early 2027.

Conclusion

In summary, the LegalShield report reveals a reality masked by mainstream consumer data: American households are relying on credit to maintain a superficially stable lifestyle, while their underlying financial situation has been deteriorating for over two years. Record-high consumer stress indices, household debt approaching $19 trillion, and rising bankruptcy and foreclosure pressures all point to the limits of ordinary consumers' ability to cope. Layton frankly admits that while there are no obvious policy solutions, the lack of a sudden surge in financial pressure means the economy may have more time to adjust compared to previous crises. For policymakers, the core challenge in the coming period will be acknowledging the true financial disparities within households beneath the seemingly robust consumer data.