Paycheck-to-Paycheck Consumers Show Strain as Revolving Credit Balances Spike 17.7%

Consumers loaded up on debt even before the holidays and into Black Friday — and those of us living paycheck to paycheck may feel the pinch of that added debt.

Right as delinquencies are creeping up.

The latest data from the Federal Reserve, released Monday (Jan. 8) showed that overall credit was up 5.7%, annualized. And within that headline number, revolving credit, which includes credit card debt, leapt in November at an annualized pace of 17.7%. 

That’s the fastest pace seen, annualized, through the past several months.

At the end of the third quarter the growth was 10.2%, and a relatively muted 2.7% in October. 

Overall revolving debt now is just under $1.3 trillion, up from the roughly $1.2 trillion at the end of 2022.

As reported Monday, of the total $23 billion monthly increase in debt in November, $19.1 billion of the increase was tied to revolving debt, while nonrevolving credit made up the other $4.6 billion.  

Credit card debt, of course, tends to have significantly higher interest rates than other debt. 

The Fed’s reported interest rates on cards stood at more than 21%, up from 15% just before the pandemic.

Personal loans tend to be a way for consumers to consolidate that debt into obligations with lower interest rates. And, indeed, the Fed data noted that personal loans grew at a 12.3% annualized pace in November.

If 60% of the economy lives paycheck to paycheck, as we’ve estimated, and a significant percentage of consumers tapped credit to finance their gifting, that means that 1) they’ve taken on even more debt that has been seen with the Fed’s November report and 2) they’re likely to feel a squeeze.

Delinquencies on the Rise

Data from VantageScore released into the new year underscores the fact that personal loans have been no panacea. Already in November, delinquencies for the month remained elevated from the same month the prior year for all loan categories.

Month-over-month “early-stage delinquencies spiked .12% from .87% to .99%, which was the second time this year that delinquencies in this category surpassed pre-pandemic levels,” as disclosed in VantageScore’s report.

Meanwhile, overall credit utilization among near-prime consumers, with a FICO score ranging between 601 to 660, stood at nearly 69%, with the average balance at more than $9,000. That’s up from the roughly $6,800 balance held by this cohort merely two years ago. 

The wiggle room to manage credit adroitly is becoming a bit more constrained.