Consumers took on more debt this summer

September 8, 2025

Consumers took on more debt over the summer, with consumer credit outstanding increasing at a 3.8% annual rate, the highest reading since April. Credit increased at an upwardly revised rate of 2.3% in June.

Consumer credit demonstrated more momentum than expected going into the third quarter; second quarter consumer credit outstanding was revised up to 2.8% from 2.3% last month. On a year-over-year basis, consumer credit outstanding increased 0.3%, down from 0.4% last month. That is an extremely tepid pace by historical standards, reflecting both high interest rates and lower consumer confidence.

Revolving debt, primarily made up of credit cards but also including personal and home equity lines of credit, jumped 9.7%, the largest increase since December 2024. That is far above the trend for 2025; revolving debt has been subdued for most of this year, particularly in May and June.

Disposable personal income rose 0.2%, but consumption increased even more, by 0.5% in July mainly on a 1.9% jump in spending on durable goods. Motor vehicles contributed to much of that rise, but other large household purchases like furniture, recreational goods and clothing may have contributed to the jump in credit card debt. Consumers had previously been delaying those types of purchases in the face of uncertainty, but new trade policy changes on the horizon in August may have spurred another round of stocking up.

Nonrevolving debt, which includes car loans, student loans and personal loans, increased at an annual rate of 1.8%, the lowest pace since February. That is despite stronger auto sales in July. Weaker auto sales in June may be contributing as households paid down some of their existing loans. We do not, however, expect nonrevolving debt to stay suppressed; a rise in student loan debt has been contributing to substantial increases.

There are structural headwinds for credit demand and supply. The Federal Reserve Bank of New York's quarterly household debt and credit report shows that serious delinquencies (90+ days) are rising, particularly among young and low-income borrowers. The hardest hit are student loan borrowers, whose serious delinquencies surged to 10.2% from 0.5% last year when penalties for late payments were still delayed. That could hit their credit scores, impacting credit availability and consumption. Those same borrowers are increasingly turning to "buy-now-pay-later" loans, which are not officially counted in consumer credit outstanding but will be reflected in credit scores.