Consumer borrowing remained tepid in October, possibly indicating that Americans are feeling increasing financial stress.
The U.S. economy 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.
This is bad news for an economy built on borrowing and spending money. It also reveals why so many people are pushing for further interest rate cuts despite price inflation still well above the Fed's stated target.
October Consumer Debt Data
Consumer debt grew at a slower-than-expected pace of 2.2 percent in October. The forecast was for consumer credit to increase by $11.8 billion. The actual figure was $9.18 billion, according to the latest data from the Federal Reserve.
Investing.com said the “unexpected dip” in borrowing could signal declining consumer confidence.
“A decrease in consumer credit could signal that consumers are less willing or able to take on credit for purchases, which could in turn impact the broader economy.”
Total outstanding consumer debt currently stands at $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 has slowed significantly. In October, non-revolving debt growth, primarily reflecting outstanding auto loans, student loans, and loans for other big-ticket durable goods, collapsed.
Non-revolving credit grew by just $3.7 billion, a 1.2 percent increase. This was well below the 2 percent average growth we have seen over the last year. And 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.
Meanwhile, revolving debt, primarily reflecting credit card balances, grew by a modest $5.4 billion in October, a 4.9 percent annual increase. This was a larger increase than recent months, but still below the average debt growth we saw last year.
In fact, the growth of revolving debt has been slowing all year. It contracted in May and June, after a one-off surge in April, before suddenly surging once again in July. But in August, revolving debt contracted by 5.5 percent.
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 19.83 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.
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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