Consumers Cut Extras as Credit Card Debt Nears a Record

The June credit report indicates that the checkout total can keep rising even when the consumer’s financial cushion is getting thinner.

Consumer credit expanded at a 3.3% seasonally adjusted annual rate in June, according to Federal Reserve data, reversing a 0.3% contraction in May. The change was concentrated in revolving credit, which includes credit card balances. Revolving debt grew at a 6% annual rate after falling 4.7% in May, a swing of nearly 11 percentage points in one month.

That rebound adds to an already volatile borrowing picture. Overall revolving debt jumped at a 10.5% annual rate in April before retreating in May, producing the sharpest monthly swings in more than two years. Across the second quarter, it grew 3.9%, just below the first quarter’s 4.1% pace.

The level of debt points in the same direction. Revolving balances reached $1.351 trillion in June, roughly $1 billion below their October 2024 peak. One more increase of June’s size would take the category to a record. Total consumer credit outstanding rose to $5.167 trillion, while nonrevolving credit, which includes auto and student loans, increased at a steadier 2.3% annual rate.

The slower nonrevolving increase makes the card “moves” more notable. Motor vehicle loan balances did rise during the quarter, but student loan balances declined. The June acceleration was therefore not simply the result of households financing more large-ticket purchases. The most flexible, and generally most expensive, major credit category supplied the lift.

Revolving credit is the part of the consumer balance sheet that can expand quickly when monthly cash flow comes up short. Auto and student loans generally finance a specific purchase or obligation. A card can pay for groceries, utilities and other recurring expenses, then carry the unpaid portion into another month. The average rate across all card accounts eased slightly to 20.94% in the second quarter. But the rate on accounts actually assessed interest rose to 22.15% from 21.52%.

PYMNTS Intelligence data helps explain why some households may be using that option as a bridge. The Inflation Mirage: What Rising Spending Hides About Consumer Demand, found that household financial resilience has weakened since December, including a 1.9-point decline in consumers’ assessment of whether their debt is manageable. Job-security sentiment improved, but confidence in the next paycheck is not the same as having enough cash left after it arrives.

The pressure is uneven. Among paycheck-to-paycheck consumers who struggle to pay bills and also earn money from side work, 64% said those earnings help cover basic living expenses. In that financially strained group, 43% could not cover a $1,200 emergency within a week, 68% had no more than one month of savings, and 45% had none.

The Fed’s aggregate credit data do not show what consumers bought or which income groups added debt. They do, however, supply a plausible read-across: when prices rise faster than the volume of purchases, income is flat and savings are thinning, revolving credit becomes one of the few readily available ways to keep ordinary spending on schedule.

Consumers also appear to be narrowing what they buy before borrowing. PYMNTS Intelligence found that 53% of paycheck-to-paycheck consumers struggling with bills had cut spending on dining, entertainment, travel and other nonessentials over the past year, compared with 23% who spent more. That suggests cards may be bridging a constrained budget, not funding a broad discretionary surge.

June therefore does not likely signal carefree credit demand but rather assumption of reliance on a familiar cash-flow tool. The risk is in duration. A card can bridge a timing gap for one billing cycle. At interest rates above 22% for balance carriers, repeated use creates an ever-ballooning expense.