Is Revolving Credit Cooling or Simply Catching Its Breath?

Consumer credit rarely moves in a straight line, and May’s Federal Reserve data offered a reminder that one month’s pause can support more than one interpretation.

After two months of brisk growth, revolving consumer credit, which includes credit card balances, declined at a 4.7% annualized rate in May, as Federal Reserve data indicated on Wednesday (July 8). Total consumer credit was essentially unchanged because nonrevolving borrowing, including auto and student loans, continued to expand, albeit at a slower pace.

The result was less a broad retreat from borrowing than a change in where consumers chose to add, or reduce, debt.

The reversal follows annualized gains in revolving credit of 9.7% in March and 10.4% in April, making May’s decline stand out. Revolving balances slipped to $1.344 trillion from $1.350 trillion, while total outstanding consumer credit remained near $5.15 trillion as increases in nonrevolving credit largely offset the decline. Borrowing costs also remained elevated, with average credit card rates still above 20%, giving consumers a meaningful incentive to pay down balances when possible.

Whether the May figures mark the beginning of a broader slowdown remains uncertain.

One explanation is that households have become more selective about discretionary purchases after relying more heavily on cards during the spring. Another is that consumers simply used seasonal income, tax refunds or other cash inflows to reduce balances after two months of heavier borrowing. The Federal Reserve data alone cannot distinguish between those possibilities, and a single month’s reading does not establish a lasting trend.

Revolving credit has often served as a barometer of household confidence. Rising balances can signal greater willingness to spend, but they can also reflect higher prices or tighter budgets. Falling balances likewise may indicate greater financial caution, stronger repayment activity or some combination of the two.

Recent PYMNTS Intelligence research suggests consumers increasingly view credit through the lens of cash-flow management rather than discretionary spending. Our research on the American paycheck found that many households continue to face pressure from higher living costs even as spending remains relatively steady. Households are reprioritizing expenses, drawing on savings less frequently than in the past and using credit selectively to bridge the timing gap between income and bills.

Credit as a Financial Management Tool

For younger consumers in particular, that role appears to be evolving rather than expanding.

PYMNTS Intelligence research indicates that younger borrowers continue to use credit frequently, but they are becoming more deliberate about which products they choose. Over the past year, credit card installment plans consistently outpaced buy now, pay later (BNPL) products among Gen Z, millennials and bridge millennials by roughly a two-to-one margin. In the latest survey, 47% of Gen Z consumers reported using a credit card installment plan during the previous 90 days. The broader PYMNTS research also indicates that credit is functioning less as a vehicle for discretionary purchases than as a financial management tool. Many households are using credit to smooth the timing mismatch between paychecks and expenses instead of financing impulse purchases.

A decline in revolving balances does not necessarily imply that consumers have become reluctant to borrow. It may instead indicate that households are substituting one form of credit for another or placing greater emphasis on products that provide more predictable repayment schedules.

Consumers continue to face elevated interest costs and persistent pressure on household budgets, but they also appear to be adapting. Some are paying down revolving balances after earlier spending. Others are moving toward installment products that offer greater certainty over future payments.

Additional months of Federal Reserve data will determine whether May represents the beginning of a sustained moderation in revolving credit or simply a pause following an unusually strong spring. For now, the broader picture remains one of adjustment rather than retrenchment.