Debt data continues to signal deep consumer stress

Consumer borrowing cratered further in November, likely reflecting growing consumer stress, as price inflation persists and credit cards become maxed out.

That's bad news for a U.S. economy that depends on consumers buying stuff. Persistent price inflation forced Americans to blow through their savings and then turn to credit cards to make ends meet. However, consumer borrowing has slowed significantly this year, indicating Americans may be maxing out the plastic.

The slowdown in borrowing also reveals why so many people are pushing for further interest rate cuts despite price inflation still well above the Fed's stated target. They want to pump up borrowing to stimulate the economy.

After climbing at a tepid 2.2 percent rate in October, consumer debt grew at an even slower pace of 1 percent in October, according to the latest data from the Federal Reserve.

The 4.1 billion increase pushed total consumer debt to $5.08 trillion.

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 $18.59 trillion in debt.

Over the last several months, the growth of revolving credit, primarily reflecting credit card balances, has slowed significantly. After climbing modestly in October, credit card spending cratered in November. Revolving debt fell by $2.1 billion.

KPMG recently reported that the slowing growth of revolving credit likely reflects a drop in borrowing and spending by the bottom 80 percent of U.S. households “that are increasingly stressed.”

“The top 20 percent now account for nearly two-thirds of all consumption. The top 3.3 percent have increased spending the most. Spending has stagnated, adjusting for inflation, among the bottom 80 percent.”

The double whammy of rising debt and interest rates exacerbates the debt problem. The average annual percentage rate (APR) currently stands at 19.64 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 in August 2024, despite Fed rate cuts.

High debt levels have created elevated levels of consumer stress.

LegalShield’s Consumer Stress Index (CSLI) increased by 3 points in the third quarter and was at the highest level since March 2020, when the economy was shut down during the pandemic.

The source of this stress: debt.

According to LegalShield, “The index has now increased for seven consecutive months, up 8.2 percent in 2025, signaling continued financial strain among American households. Legal inquiries related to bankruptcy rose sharply, while foreclosure and consumer finance issues remain elevated.”

Meanwhile, the New York Fed reported that overall delinquency rates remained “elevated” in the third quarter, with 4.5 percent of all debt in some stage of delinquency. Credit card and student loan delinquencies have increased at the fastest rate.

Overall debt flow into serious delinquency was 3.03 percent in the third quarter, up from 1.68 percent year-on-year.

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.

Meanwhile, non-revolving debt growth, primarily reflecting outstanding auto loans, student loans, and loans for other big-ticket durable goods, has been stagnant for months. In October, it collapsed, growing by just 1.2 percent. Non-revolving credit rebounded modestly in November, but still only grew by 2 percent, around the average we’ve seen over the last year-plus.

Before the pandemic, revolving credit growth averaged 5 percent. 

It appears consumers are opting not to finance big-ticket items, as more and more of their income is necessary just to pay daily expenses.

Borrowers are also struggling to keep up with their non-revolving loans – particularly their student debt. Seriously delinquent student loans surged to 10.2 percent in the second quarter as the government began requiring payments after years of forbearance in the wake of the pandemic.

Transitions of student loans into serious delinquency rose to 14.3 percent in the third quarter. That was up from 12.9 percent in the second, 8 percent in the first, and 0.8 percent in the fourth quarter of last year. It has been the fastest transition rate into serious delinquency since the data have been collected, going back to 2000.

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.