Consumer borrowing continues to sag signaling economic pain on main street

For the second straight month, consumer borrowing was weak, indicating Americans might be close to their credit limits.

Over the last several months, credit card spending has dropped, signaling that Americans may be running out of borrowing power. This is bad news for an economy that depends on consumers buying stuff to stay afloat.

After a one-off surge in April, consumer borrowing tanked in May and was tepid again in June.

Consumer debt grew by just $7.4 billion in June, a 1.8 percent annual change, according to the latest data from the Federal Reserve.

Americans now owe $5.05 trillion in consumer debt.

The Federal Reserve consumer debt figures include credit card debt, student loans, and auto loans, but do not factor in mortgage debt. When you include mortgages, U.S. households are buried under a record level of debt. As of the end of Q1 2025, total household debt stood at $18.2 trillion.

Credit card borrowing plunged in May and dipped again in June. Revolving debt, primarily reflecting credit card balances, shrank by -1.0 percent in June. That follows on the heels of a -3.5 percent decline in May.

Even with the decline, Americans still owe $1.3 trillion in revolving debt.

The double whammy of rising debt and interest rates exacerbates the debt problem. The average annual percentage rate (APR) currently stands at 20.13 percent, with some companies still charging rates as high as 28 percent. The average is only slightly down from the record high of 20.79 percent set last August.

Americans are clearly feeling the pinch. LegalShield’s Consumer Stress Index (CSLI) increased by 4.4 percent in the second quarter and is at the highest level since November 2020, when the economy was shut down during the pandemic.

The source of this stress: debt.

LegalShield spokesperson said, “As consumers take on more credit to keep up with inflation and everyday expenses, many are hitting a breaking point. The increase in legal inquiries tied to foreclosures and personal finance issues suggests that debt-fueled spending is no longer sustainable for a growing number of Americans.” 

LegalShield’s Foreclosure Index surged 13.3 percent in Q2 and now stands nearly 29 percent higher than a year ago.

Late-stage delinquencies on credit card debt surged year over year in Q1. Meanwhile, 4.3 percent of total outstanding household debt is in some stage of delinquency. Serious delinquencies, defined as debts that are 90 or more days past due, rose to 2.8 percent of total debt, a 52 percent increase year on year.

According to CreditGauge, consumer credit delinquencies hit the highest level in five years in 2024.

“The combination of rising mid-to-late-stage credit delinquencies and rising credit balances suggests a growing debt burden that some consumers are increasingly struggling to manage." 

Subprime credit card borrowers are struggling the most, with delinquency rates nudging upward by about 5.6 percent since the Federal Reserve began raising rates to battle price inflation. 

Non-revolving credit, primarily reflecting outstanding auto loans, student loans, and loans for other big-ticket durable goods, rose by $8.4 billion, a 2.7 percent increase. This is generally in line with the tepid growth of around 2 percent in non-revolving credit over the last year, as consumers cut back on big-ticket spending to cover the increasing costs of day-to-day necessities.

Before the pandemic, revolving credit growth averaged 5 percent. 

Borrowers are also struggling with their non-revolving loans – particularly their student debt.

About 10.2 percent of aggregate student debt was more than 90 days delinquent at the end of H1, and the number is rapidly rising. Since the second quarter of 2024, there has been a 12 percent increase in the number of student loan borrowers seriously delinquent.

A senior fellow at the American Institute told Yahoo Finance the trouble began when the last pandemic-era forbearance programs ended.

“We have a lot of people who had been told over and over again that payments are going to be due, only for the pause to be extended. Now they’re told payments are going to be due, and the pause actually does end. You can imagine a lot of people just really weren’t paying attention.”

This big drop in consumer borrowing reverts to a trend we saw developing last fall. Credit card spending tanked in August 2024 and remained muted in September. They pulled out the plastic again for the holidays, but that might have been a last gasp for the American consumer.

The bottom line is that Americans have blown through the savings they accumulated during the pandemic and have run their credit cards close to the limit. An economy run on Visa and Mastercard simply isn't sustainable. When Americans finally hit their credit limit, it will have major implications for economic growth. 

---

To receive free commentary and analysis on the gold and silver markets, click here to be added to the Money Metals news service.