Consumer borrowing trends in November showed a noticeable decline in revolving credit, such as credit card usage, marking a potential shift in financial behavior as the holiday season approached. Data from the Federal Reserve’s G.19 report revealed a seasonally adjusted annual decrease of 12% in revolving credit balances, contrasting with an overall increase in retail spending during the same period. This reduction raises questions about whether consumers are tightening their financial management strategies in response to high borrowing costs or simply adjusting spending patterns temporarily.
What Led to the Drop in Revolving Credit?
The Federal Reserve’s report indicated that overall consumer credit fell at an annual rate of 1.8%, with revolving credit experiencing its sharpest decline since August 2020. While nonrevolving credit, such as auto and student loans, grew modestly by an annualized 2%, the $14 billion decrease in revolving lines nearly offset the $17 billion rise recorded in October. Elevated borrowing costs may be a significant factor contributing to this decline, as the average annual percentage rate (APR) for credit cards in November stood at 21.4%, far higher than pre-pandemic levels in the mid-teens.
Will High Interest Rates Push Consumers Toward Alternatives?
The steep borrowing costs also extended to personal loans, where the average rate for 24-month loans reached 12.3%, up from the 2023 average of 11.8%. These higher costs led consumers to prioritize paying down existing debt, particularly variable-rate debt, which has become increasingly burdensome. Additionally, the lingering effects of inflation have further complicated financial planning, making it more expensive to manage day-to-day expenses. These factors could signal a gradual behavioral shift toward more conservative financial strategies.
Earlier reports highlighted that many consumers have been exploring installment-based options, including buy now, pay later (BNPL) services, as a way to manage financial pressures. PYMNTS Intelligence previously found that 75% of consumers carried some level of credit card debt, with those living paycheck to paycheck holding an average debt of $7,000. This suggests that the decline in revolving credit may not only reflect strategic debt repayment but also a tendency to shift toward alternative financing options.
When compared to earlier data, the recent drop in revolving credit aligns with observations of consumer caution amid rising interest rates. While the uptick in BNPL adoption offers short-term relief to many borrowers, it remains to be seen whether these alternatives will significantly alter long-term credit balances or merely redistribute debt burdens.
The Federal Reserve’s upcoming December data will provide further clarity on whether November’s dip in revolving credit marks the beginning of a sustained trend or a temporary pause in borrowing. Consumer behavior during the holiday season will be particularly telling in understanding the trajectory of credit usage.
For readers, understanding these shifts is crucial, as they reflect broader economic pressures and personal finance trends. Whether consumers’ strategies will adapt further to mitigate high borrowing costs or if alternative financing options like BNPL continue to gain traction will shape the landscape of consumer credit usage. Keeping an eye on interest rate trends and federal reports like the G.19 can provide valuable insights for financial planning in an increasingly cost-sensitive environment.
