A rare decline in overall U.S. household debt has masked the fact that consumers are still adding balances to the forms of credit most closely tied to everyday spending and purchases.
Total household debt slipped by $13 billion in the second quarter to $18.8 trillion, according to the latest Federal Reserve Bank of New York Quarterly Report on Household Debt and Credit, which was released Tuesday (Aug. 11). It was only the second quarterly decline in a decade, after the $34 billion drop in the second quarter of 2020. But the decline was driven overwhelmingly by mortgages, while credit card and auto balances continued to rise.
That divergence takes on more significance alongside PYMNTS Intelligence data showing that consumers are paying more without buying much more, according to “The Inflation Mirage: What Rising Spending Hides About Consumer Demand,” which tracks the PYMNTS Consumer Expectations Index.
The result is a consumer economy in which aggregate spending can rise even as household financial room narrows. The Fed’s debt data add another dimension: The balance sheet is not expanding everywhere at once.
Mortgage balances fell $75 billion in the second quarter, reversing a two-year pattern in which they had increased by an average $74 billion per quarter. Student loan balances declined by $7 billion. Consumers, however, added $21 billion in credit card debt and $28 billion in auto debt, both above their respective two-year quarterly averages of $15 billion and $11 billion.
Cards Keep Moving in the Other Direction
Credit cards provide the clearest contrast with the headline decline. Balances increased 1.7% from the first quarter and were 4% higher than a year earlier. Compared with the second quarter of 2024, card balances are up 11%. The number of credit card accounts also continues to increase, rising 9.1% over that two-year period.
The figures do not establish what those card balances financed, so they cannot show that consumers are specifically borrowing for groceries, utilities or other necessities. They do show continued accumulation of revolving debt during a period when PYMNTS Intelligence finds that the cost of maintaining household consumption is increasing.
Higher card balances can reflect several behaviors, including increased purchases, balances carried for longer periods or some combination of the two. The Fed data supplied here does not separate those effects. What can be seen is that consumers have continued adding card debt even as overall household debt declined.
At the same time, PYMNTS Intelligence finds fewer resources available to absorb higher costs. Incomes were flat month over month in April while consumers saved less. The aggregate personal savings rate has fallen to its lowest level since June 2022, narrowing the margin between what households earn and what they spend.
There is some relief in the Fed numbers. The share of household debt that was current edged up to 95.3% from 95.2% in the first quarter, interrupting a deterioration from 97.5% in the second quarter of 2022. Serious delinquency also declined slightly for mortgages, auto loans and credit cards during the quarter, although each remained above its one- and two-year benchmarks.
That makes the direction of card debt worth watching. Consumers have more card accounts, larger aggregate balances than two years ago and growing available credit. The Fed data indicate that credit remains accessible even as the PYMNTS findings show substantial differences in households’ capacity to absorb another expense.
