Consumer borrowing tanks: Bad news for an economy that runs on consumption

After a one-off surge in April, consumer borrowing tanked again in May, a sign that Americans might be close to tapping out as they hit their credit card limits.

Locked at home and flush with stimulus money, Americans paid down their credit card debt and beefed up their savings during the pandemic. And then they dipped into their savings, pulled out the plastic, and went on a spending spree.

It wasn’t that people were buying more. They were just paying more, trying to keep up with surging price inflation. Once they blew through their savings, consumers were forced to finance life using Visa and Mastercard. Consumer debt surged from $4.15 trillion in 2020 to over $5 trillion today.

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.

There was a surge in borrowing in April as consumers tried to get ahead of potential tariff costs, but it appears this was an outlier. Consumer debt grew by just 1.2 percent ($5.1 billion) in May as revolving credit contracted, according to the latest data from the Federal Reserve. This returns to the trend of declining borrowing that began at the beginning of the year.

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. In fact, revolving credit balances decreased by 3.2 percent.

Americans currently owe $1.3 trillion in revolving credit, primarily made up of credit card 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.

Rates aren’t coming down much, even with Federal Reserve rate cuts last year. According to an ABC News report, despite a full percentage point in rate cuts, credit card companies are charging a higher margin "to weather default risk, cover overhead costs and recoup profits, experts added."

"Credit card rates are high, and they're staying high," Bankrate analyst Ted Rossman told ABC News. 

Americans are clearly feeling the strain from all this debt.

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 $8.6 billion, a 2.8 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.

According to the latest data from TransUnion, around 5.8 million student loan borrowers were 90 days or more past due on their payments as of April 2025. That represents nearly a third of borrowers who have a payment due. The number was up from 20.5 percent in February and nearly triple the 11.7 percent delinquency rate before the pandemic.

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. 

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