Consumers took on more debt in May
On a year-over-year basis, consumer credit outstanding inched higher by 0.4%.
July 8, 2025
Consumers took on more debt in May. Consumer credit outstanding increased 1.2% at a seasonally adjusted annual rate, down from a 4% increase in April. The data for April and March were both revised down. On a year-over-year basis, consumer credit outstanding inched higher by 0.4%.
Revolving debt, made up primarily of credit cards, declined by 3.2% at an annual rate. That is the first decline since last November when credit card usage was pushed into December due to the late holiday season. Rates on credit cards slightly declined to 21.2% in May, from 21.4% in the first quarter. That is still well-above the rates in 2022 and earlier.
Consumers are wary of taking on more credit card debt, especially as the debt rapidly compounds at high rates. In May, real disposable personal incomes were weak, real personal consumption expenditures fell and the saving rate remained low. Uncertainty and the pulling forward of consumption ahead of tariffs also affected credit card demand.
Nonrevolving debt, which includes car loans, student loans and personal loans, increased at an annual rate of 2.8% in May after gaining 3% in April. Rates on new car loans ticked down to where they were in 2023. The 60-month loan declined to 7.7% from 8% in the first quarter; the 72-month loan decreased to 7.7% from 8.2% in the first quarter. That helped boost credit demand, even though sales at motor vehicle dealers dropped in May. That was partially due to consumers front-loading purchases earlier in the year to get ahead of tariffs.
Student delinquencies are increasingly stressing consumer balance sheets. Already in July, nearly two million borrowers could default on their student loans; the government may start garnishing wages. Another three million borrowers are at risk of default in August and September. That will temper credit demand and consumption in the months ahead.
Note: The data on consumer credit is not adjusted for inflation. Real consumer credit outstanding was flat in May. It rose in real terms in the previous two months.
Wealth effects due to rising stock prices could buoy consumption and credit demand for the top 10% of the income distribution...Lower-income balance sheets remain stressed, especially those saddled with student debt.
Matthew Nestler, PhD
KPMG Senior Economist
Bottom Line
American consumers showed caution about taking on more credit card debt in May even as total credit rose. Higher-income balance sheets remain healthy. Wealth effects due to rising stock prices could buoy consumption and credit demand for the top 10% of the income distribution; they account for nearly half of all consumer spending. Lower-income balance sheets remain stressed, especially those saddled with student debt. Consumption is expected to drop later this year as unemployment edges up; that will likely decrease credit demand.
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