Consumers run up less credit card debt

October 7, 2026

Consumer credit outstanding increased 1.9% in August at an annualized rate. That is a slowdown from the 4.1% gain in July and 3.6% gain in June. Compared to a year ago, consumer credit rose 2.7%.

Revolving debt, made up primarily of credit cards, declined 4.2% in August. That is the largest monthly decline in almost two years. Consumers are becoming more cautious about borrowing at the current 21.2% credit card interest rate, which is higher than earlier this year. More are using buy-now-pay-later loans. Others may have paid off balances at the end of the summer.

Retail sales exceeded expectations in August. The American consumer remains remarkably resilient even as real spending has increased faster than inflation-adjusted incomes. Average hourly earnings have risen below inflation for six straight months. Rising household wealth, especially due to the AI-driven stock market boom, and tax refunds have buoyed overall consumption. 

Nonrevolving debt, which includes car loans, student loans and personal loans, rose 4.1% in August after posting a 4.7% gain in July. Vehicle sales rose in August compared to July. Interest rates for auto loans rose to 7.5% from 7.1% for a 60-month period; the rate went up to 7.2% from 7% for a 72-month period. Upper-income consumers are purchasing cars using cash.

Student loan borrowers now face compounding debt. The Department of Education reported that an additional 400,000 borrowers defaulted by the end of June. That means a cumulative 9.3 million borrowers in default. 

One break for borrowers: the Department of Education extended the possibility of applying for auto payment until the end of the year. Borrowers who enroll can reduce their interest rate by one percentage point. That change, for some, would last for almost two years. Nearly two million borrowers have already enrolled to receive the discount.