Consumers Gird for Tariffs’ Sting as Spending on Cards Is Sluggish

The latest data on consumer borrowing indicates that households pared back on debt — overall — in February amid headlines and uncertainty about tariffs. Spending on credit cards inched up, at an anemic pace.

In the latest reading from the Federal Reserve, total credit slipped by more than $800 million, in contrast to the $8.9 billion gain seen in January. The decline was a marked reversal from the $15 billion gain that had been expected.

In February, consumer credit decreased at a seasonally adjusted annual rate of 0.2%, marking its third decline in four months. This represents a significant shift in the trend relative to 2024, in which credit grew on a monthly basis on all but two occasions, November and December.

Revolving Debt Inches Up

Revolving credit, a category that includes credit cards, increased at an annual rate of 0.1%, which was a significant slowdown from the annualized 6% boost measured in January.

The total amount outstanding of revolving debt remains 3.3% below the 2024 highest record (October). Nonrevolving lines shrunk by 0.03% and stand 1.7% below their October 2024 levels.

Terms of credit saw mixed signals in February. Terms for new car loans averaged 8.06% for 60-month loans and 8.16% for 72-month loans, somewhat below the 2024 average but an increase relative to the end of last year (7.82%) and still well above the 2021 levels (at 4.8%). The average interest rate for a 24-month personal loan inched down to 11.7%, below the average for any quarter of 2024, but still significantly higher than the 2021 threshold (9.4%).

But the card debt still carries lofty interest rates. Average APRs for credit card holders stood largely unchanged at 21.4% in February, close to 50% above the average for 2021.

The Read Across

The read across is that consumers had been using their cards to get what they needed, and wanted, ahead of the tariffs that are now a reality. And it may be the case that they used disposable income to offset at least some of that card-based spending. In the meantime, they paid down some of the nonrevolving debt, which shortens the life of the car loans and the student loans, even if the actual monthly payments do not decline.

Elsewhere, as PYMNTS Intelligence has detailed in recent reports, households have been turning to other avenues to make daily life and essential purchases more affordable.

Buy now, pay later (BNPL) loans stand out here. As estimated in research done as part of the “Pay Later Revolution: Redefining the Credit Economy” report, more than 1 in 3 American consumers, 38%, used the payment method, up from 24% in the prior year.  And we found that the appeal of BNPL extends across all manner of income levels: 6 in 10, 61.4%, of Americans making more than $100,000 a year use BNPL.

Traditional credit still has its adherents, of course. As detailed here, PYMNTS Intelligence and Splitit have found that 35% of consumers have used a credit card to pay for their most recent impulse buy. And 33% of consumers used credit cards as their primary form of payment for their most recent, unplanned, emergency purchases.