There's A 2-Tiered Credit Card System In America

As the cost of groceries, housing, and everyday necessities continues to rise, many Americans are leaning more heavily on their credit cards to stay afloat. But not everyone is experiencing credit card usage the same way—some are actually profiting from it.

Over the years, the credit card industry has quietly evolved into a tale of two markets, according to the Atlantic: one that showers perks and rewards on wealthy users, and another that traps lower-income Americans in costly debt, effectively allowing the poor to subsidize the rich.

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Transactors vs. Revolvers. 

Aaron Klein of the Brookings Institution explained that affluent users are often labeled “transactors” in the credit world. These individuals typically have the cash flow to pay off their balances in full each month, sidestepping late fees and sky-high interest rates. And those interest rates are no joke. The Federal Reserve Board reported that as of February, the average rate on credit cards carrying a balance hit 21.91%, though the exact rate depends on one’s credit score.

But the wealthy aren’t sweating those numbers. Instead, they use credit cards strategically to rack up travel rewards, cash back, airport lounge access, seat upgrades, and more. For them, spending money on credit is less about necessity and more about maximizing value, earning as they spend, rather than paying for it later.

“If you’re spending $100,000 a year, you’re getting maybe $1,500 back in terms of points or cash,” Klein told the Atlantic on March 19 of the huge perks transactors often receive. “You’re not paying taxes on that. It’s worth closer to $2,500 or $3,000 a year in taxable income.” 

Credit card companies love transactors because these users rarely default, making them low-risk and highly profitable. For major financial institutions like Chase, Citi, American Express, and Capital One, it’s a win-win: they earn a cut from every transaction while offering cards packed with perks. Frequent travel among transactors also fuels lucrative partnerships between credit card issuers, airlines, and hotel chains.

But those rewards are largely out of reach for working-class families and low-income individuals. Klein refers to this group as “revolvers,” borrowers who rely on credit cards both as a payment method and as a short-term financial lifeline. They’re the ones turning to credit for unexpected bills, groceries, or just to bridge the gap until payday. Unlike transactors, revolvers often qualify only for basic, no-frills cards that lack enticing rewards like cash back or travel perks.

Worse, many revolvers carry balances for months or even years, becoming trapped in a costly cycle of debt. The average U.S. credit card balance rose from $6,380 in Q3 of 2024 to $6,580 in Q4, according to TransUnion. And with interest rates hovering above 21%, that debt is more expensive than ever. The Federal Reserve Bank of New York reported that credit card balances “increased by $45 billion from the previous quarter to reach $1.21 trillion at the end of December.”

When rising balances collide with soaring interest rates, the financial burden can quickly overwhelm household budgets, pushing many deeper into a cycle that’s hard to break. Delinquency rates on credit card loans were up by 3.08% at the end of Q4.  

“When you talk to rich people who pay off their balance, they think that credit-card companies are losing money on them, and they’re the ones subsidizing the people who carry a balance,” Klein said. “It’s the exact opposite.”

Klein shared that wealthy families benefit twice from the credit card system. First, swipe fees charged to businesses when customers use credit cards raise prices for all consumers, but only those with high-end rewards cards (usually the wealthy) get perks in return. Second, the rewards and perks that wealthier transactors enjoy are indirectly funded by the interest and fees paid by lower-income revolvers who carry credit card debt. In short, the poor help pay for the rich to benefit.

How can you protect yourself?

The two-tiered credit card system is clearly unfair—but there are small, practical steps consumers can take to ease their credit card debt and regain financial control. To protect themselves from falling into credit card debt, consumers should aim to pay off their balances in full each month to avoid costly interest charges. It’s important to understand your card’s interest rate (APR) and avoid relying on minimum payments, which can lead to long-term debt.

Tracking spending through budgeting tools and building an emergency fund can also reduce the need to use credit for unexpected expenses. While rewards like cash back and travel points can be tempting, they shouldn’t justify unnecessary purchases—especially if you’re carrying a balance. Setting up automatic payments and account alerts can help prevent missed due dates, while keeping your credit utilization low (ideally under 30%) supports both your credit score and financial health. 

For those with existing debt, a 0% balance transfer card—a credit card that allows you to transfer existing credit card balances to a card with no interest charges for a limited period—could be a good tool to help you reduce debt. But it’s important to note that the balance must be paid off before the promotional period ends.

Ultimately, using credit mindfully and knowing when to pause card usage can help consumers stay in control and avoid the debt trap.

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