Consumers back away from taking on new credit card debt

October 7, 2025

Consumers demonstrated caution about taking on more debt in August, marking a pullback from July. Consumer credit outstanding eked out a 0.1% gain at seasonally adjusted annual rate in August. That is markedly down from an upwardly revised 4.3% rate in July. On a year-over-year basis, consumer credit outstanding edged higher by 0.2%.

Revolving debt, made up primarily of credit cards, declined by 5.5%. That is partially a correction from an upwardly revised 10.3% surge in July.

Disposable personal income, adjusted for inflation, rose 0.1% in August, down from a 0.2% gain in July. Spending rose even faster. Personal consumption expenditures, adjusted for inflation, rose 0.4% in August, the same as July. Spending increases were broad-based across both the service and goods sectors.

The August decline in credit card debt could reflect a pullback in credit demand among the bottom 80% of households that are increasingly stressed. The top 20% now account for nearly two-thirds of all consumption. The top 3.3% have increased spending the most. Spending has stagnated, adjusting for inflation, among the bottom 80%.

If sentiment shifts among affluent consumers, consumption and GDP growth may slow. A red flag would appear if the stock market declines, given how wealth effects stimulate high-end consumption.

Nonrevolving debt, which includes car loans, student loans and personal loans, increased at an annual rate of 2% in August after gaining 2.2% in July. Auto sales rose in July and August, especially for EVs; consumers rushed to purchase ahead of the end of the tax credit on October 1. A new car is now a luxury good that almost only the affluent can afford.

Stress in student loans is continuing to affect credit demand and consumption. Seriously delinquent student loans surged to 10.2% in the second quarter from only 0.5% in the fourth quarter of 2024.

FICO credit scores continue to drop compared to a year ago; the declines were largest among Gen Z, many of whom are struggling with student loan payments. Defaults could start to rise in the months ahead if payments become delinquent for 270 days or more.

Note: The data on consumer credit is not adjusted for inflation. Real consumer credit outstanding fell by 0.4% in August after posting a 0.2% gain in July.