Following a whirlwind of holiday spending, consumers have returned to a more stable spending pace, as evidenced by increased borrowing on credit cards and other debt forms.
In December, total credit saw a substantial rise of $37.1 billion, with revolving credit — which encompasses credit cards — experiencing an annualized growth rate of 18.5%, rebounding from a 16.1% decline in November. This data indicates that consumers were preparing for the year-end gift-giving rush and taking advantage of holiday sales.
On Friday (March 7), the Federal Reserve released new data showing that total credit rose by $18.1 billion in January, exceeding the consensus estimate of around $15 billion.
Revolving debt increased by $9 billion, while non-revolving debt, which includes auto loans, also saw a monthly rise of about $9 billion.
Overall consumer credit grew at a seasonally adjusted annual rate of 4.3%. However, this marks a slowdown compared to December, when the growth rate was 8.7%.
The 4.3% growth rate for January aligns with normal levels for this month, relative to the figures recorded in January 2020, 2021, 2022, 2023, and 2024, which were 4.4%, 3.1%, 4%, 4.5%, and 3.7%, respectively.
Regarding the “normalization” of revolving credit, the corresponding rates were 10.5%, 8.5%, and 8.6% for 2022, 2023, and 2024, respectively. For non-revolving credit, January rates for those years were 2.1%, 3.2%, and just under 2%.
In January, total outstanding consumer credit (seasonally adjusted) surpassed $5 trillion. Nevertheless, this marks a minor decline of 0.6% compared to January of the previous year.
This normalized pace still signifies an “addition” to the monthly obligations that consumers, already under financial strain, are managing. A favorable insight for BNPL providers is that a reduction in traditional credit avenues may lead consumers to opt for pay-later options tied to debit accounts.
The rapid growth seen by companies like Sezzle and Affirm, with numerous categories witnessing double-digit expenditure (and Sezzle achieving triple-digit revenue growth) has significantly outpaced the growth reflected in the Fed’s data.
PYMNTS Intelligence has found that credit card debt is widely prevalent: Among high-income cardholders earning over $100,000 annually, 75% have an outstanding credit balance. This figure is identical among middle-income cardholders earning between $50,000 and $100,000, while 74% of lower-income cardholders earning less than $50,000 also carry balances on their credit cards.
However, this research reveals that 25% of cardholders reported an increase in their outstanding balance over the past year, while 55% indicated it remained stable. Only 21% noted a decrease, indicating that available spending power remains somewhat constrained, particularly as new debt was accrued in January.
Around 19% of our respondents indicated they had reached their credit limits at least once in the past year.
Additionally, the Fed estimated last month that credit cards maintain the highest proportion of loans with balances being 90+ days delinquent, hitting a percentage of 11.5%. This figure has risen by 2% quarterly and 17% year-over-year.
According to Fed data, depository institutions hold 40.2% of the total outstanding consumer credit. The federal government accounts for 30.9%, while finance companies and credit unions hold 14.8% and 13%, respectively.
