Consumer debt unexpectedly surged in July

Retail sales showed a healthy increase of 0.5 percent in July. At the time, analysts claimed this was a sign of a resilient consumer. Turns out, they charged that shopping spree to their credit cards.

After contracting for two straight months, revolving credit, primarily reflecting credit card balances, unexpectedly surged in July, rising by 9.7 percent on an annual basis.

This would seem to indicate consumers are still holding on amid rising prices, but only because they haven’t quite reached their credit limits.

Meanwhile, non-revolving credit, reflecting spending on big-ticket items, remained subdued.

Overall, consumer debt jumped by $16 billion, a 3.8 percent annual gain, according to the latest data from the Federal Reserve.

Americans are buried under $5.06 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 $18.4 trillion.

The sudden surge in revolving debt broke a trend of declining credit card borrowing. Credit card borrowing plunged in May and dipped again in June. In July, it increased by $10.5 billion.

Currently, Americans owe $1.31 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 20.12 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.

During the pandemic, Americans paid down their credit card balances and boosted their savings. But as price inflation gripped the economy in the wake of aggressive pandemic money printing and stimulus, Americans blew through their savings and turned to credit cards to make ends meet. Now, they're paying the piper.

High debt levels have created elevated levels of consumer stress.

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.

According to the New York Fed, aggregate delinquency rates remained elevated in the second quarter, with 4.4 percent of outstanding debt in some stage of delinquency.

Credit card delinquencies are rising, even among consumers with strong credit scores. According to VantageScore, there was a 47 percent year-on-year increase in late payments by people in the prime segment.

Tepid growth in non-revolving debt also signals consumer stress. Non-revolving credit, primarily reflecting outstanding auto loans, student loans, and loans for other big-ticket durable goods, grew by just $5.5 billion, a 1.8 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.

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 who are seriously delinquent.

The mainstream media touted the sudden return to credit card spending as a positive sign for the economy, indicating that consumers are “confident.” But this does not line up with survey data that indicates Americans are financially stressed and worried. It’s more likely this surge in credit card use was a last gasp effort to make ends meet.

The bottom line is that an economy propped up by credit cards is not sustainable.

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