The fastest-growing part of consumer credit in September was the kind that lets a household put this week’s groceries on next month’s bill.
The Federal Reserve’s Friday (Nov. 6) G19 report on consumer credit indicated that revolving credit, which includes credit cards, accounted for more than half of September’s $28 billion increase in consumer credit despite making up about a quarter of outstanding balances.
And what leaves households with less money to pay the card bill? Among cardholders who told PYMNTS Intelligence in October that they were paying in full less often than a year earlier, 29.6% said their regular expenses had risen and 27.5% said those expenses exceeded their income. Only 9.2% named a large unexpected expense as the main reason. That puts the emphasis on bills households expect to pay again next month. A separate July survey identified groceries, utilities and fuel or transportation as the most commonly cited sources of summer budget pressure.
The Fed’s Friday report showed that total consumer credit rose to $5.224 trillion in September, growing at a seasonally adjusted annual rate of 6.4%, up from 1.9% in August. Revolving balances climbed to $1.369 trillion as growth swung from a 4.4% annualized decline to a 14.5% annualized increase. Nonrevolving credit, which includes auto and student loans, slowed to 3.6% from 4.1% in August and 4.7% in July. Over the full quarter, the two categories grew at nearly the same rates. September’s acceleration came from the rebound in revolving balances.
The Fed measures the amount owed after new charges and repayments. The October PYMNTS Intelligence data shows where paying the statement in full had become less common. Among cardholders living paycheck to paycheck and struggling to cover bills, 40.7% said they paid in full less often than a year earlier, compared with 4.5% of those who did not live paycheck to paycheck. Across all cardholders, roughly equal shares reported paying in full more often and less often. The repayment shift was concentrated among people who already had difficulty covering their bills.
Households Still Paying Their Bills Grow Wary of Debt
There was a different response among consumers who lived paycheck to paycheck and were still paying their bills without difficulty. In October, 21.2% said worries about their jobs or incomes had prompted them to pay down debt faster or avoid taking on more, up from 15.2% in August. Confidence in managing existing debt over the next year fell to 61.1% from 71.2% in September, even as overall consumer sentiment held nearly steady and more respondents expected the national economy to improve.
The cost of keeping funds at the ready available helps explain what is at stake in that choice. Among cardholders paying in full less often, 13.2% said their main reason was to keep more cash on hand. The Fed put the third-quarter average annual rate at 22.36% for commercial bank card accounts charged interest. Holding on to cash can cover a bill before payday, while carrying a balance at that rate adds a claim on future income.
The push-and-pull on the next paycheck extends to larger purchases. Among consumers who bought a cheaper option, postponed a major purchase or canceled it, 16.4% said saving money or paying down debt was the main reason. Another 14.7% cited financing costs. The September increase in outstanding credit tells lenders how much more consumers owed. The PYMNTS surveys show where existing debt is already entering the decision about what to buy next.
