U.S. Consumer Credit Cools Due to Sharp Drop in Credit Cards

U.S. consumer credit increased less than expected in August, following the largest monthly decline in credit card debt and other revolving lines since November 2024. This data coexists with high financing costs and an increase in loans for vehicles and education.

• Total outstanding credit rose by USD $8.3 billion in August, below the forecast of USD $15 billion.
• Credit card debt and other revolving credit fell by USD $4.8 billion, while non-revolving credit increased by USD $13.1 billion.
• The average interest rate on credit cards reached 22.36%, and bank loans for new cars averaged 7.54%.

The decline in credit card debt moderated the growth of consumer credit, although total indebtedness continued to rise and the cost of financing purchases remained high.

Outstanding consumer credit in the United States grew in August at a slower pace than expected, primarily due to a sharp contraction in credit card balances and other revolving lines. Data released by the Federal Reserve shows that the total increase was USD $8.3 billion, compared to a median forecast of USD $15 billion among economists surveyed by Bloomberg.

A Smaller Increase Than Expected

The increase in August was the most moderate in three months and contrasted with the revised increase of USD $17.7 billion recorded in July. The difference from the forecasts does not mean that total credit has decreased: the outstanding balance still grew, but at a slower pace than the consensus anticipated.

The figures correspond to consumer credit and do not include mortgages, so they do not describe the full set of financial obligations of households. Within that measurement, the decline in revolving credit partially offset the increase in loans that are typically amortized through set payments, such as those for vehicles or school tuition.

The main movement was in credit cards and other revolving products, whose outstanding balance fell by USD $4.8 billion in August. Bloomberg noted that this was the largest monthly decrease since November 2024, a figure that marks a significant change from months when this category had contributed to the growth of indebtedness.

The contraction of one category alone is not enough to determine why households reduced their balances or whether they will be able to sustain that trend. The report provides an aggregated snapshot of August: it shows how much outstanding credit changed, but it does not identify individual decisions or separate the reasons for each consumer.

Non-Revolving Credit Took a Different Direction

While revolving balances decreased, non-revolving credit increased by USD $13.1 billion during the month. This category includes loans for purchases such as cars and education expenses, so its increase more than compensated for the reduction in credit cards and other similar lines.

The behavior of vehicle loans coincided with a rebound in car sales. According to industry data cited in the report, car sales in August advanced at the fastest pace since April of the previous year, although this coincidence does not allow attributing the growth of credit solely to vehicle purchases.

The distinction between revolving and non-revolving credit helps to understand why the total can rise even when credit card balances decrease. Loans for cars or education can boost the aggregate balance, while a drop in credit cards moderates it; in August, both movements occurred simultaneously.

The data does not imply that consumers have stopped financing their expenses. It indicates that the composition of debt changed during the month and that the increase in non-revolving loans kept the total in positive territory, even with the largest drop in credit card usage recorded in almost two years.

Resilient Spending Against Higher Costs

American households had maintained robust spending, contributing to economic growth despite high prices, according to the report. At the same time, wage growth slowed, and the personal savings rate fell to its lowest level in four years, a combination that tightens the margin available to absorb higher expenses or payments.

Financing also became more challenging, in a context where the yield on the 10-year Treasury bond hovered at levels not seen since 2002. The report linked this movement to concerns about inflation and expectations that economic growth would continue to be solid, without presenting these factors as a single explanation for the behavior of each type of credit.

The Federal Reserve raised its benchmark rate in September, and investors were contemplating another hike before the end of the year, according to the published information. For households, the evolution of rates matters because it affects the cost of borrowing, although the report does not specify how individual payments would change in the event of future movements.

The pressure is particularly significant for low-income households and for those carrying balances on credit cards. In August, the average interest rate on credit card accounts reached 22.36%, the highest level reported in a year by the Federal Reserve's consumer credit report.

What the Rates Reveal and What the Data Does Not Allow Us to Conclude

The average cost of a bank loan for 60 months to purchase a new car was 7.54% in August. This rate and the average of credit cards describe different products, with different terms and conditions, so it is not advisable to compare them as if they reflected the same type of financing.

The figures do illustrate that the moderation of aggregate credit occurred alongside high costs for those borrowing or carrying interest-bearing debt. The drop of USD $4.8 billion in revolving balances can coexist with a heavy burden for consumers who still owe money, especially if their incomes grow more slowly.

However, the monthly report does not demonstrate that rates caused the reduction in credit card balances nor does it allow us to assert that there is a general contraction in consumption. In August, total credit increased, and the non-revolving component also advanced; the central data point is the moderation of the aggregate pace and the specific decline of revolving credit.

The publication thus offers signals pointing in different directions: still robust spending, more loans for cars and education, lower revolving debt, and high financing costs. The evolution of upcoming data will allow us to observe whether the drop in credit cards was an isolated movement or part of a more persistent trend in household indebtedness.

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