Anna Barclay, Getty Images. Photo illustration.
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- In November, the total U.S. consumer credit card debt dropped 12% on an annualized basis. It was the first time since the beginning of the Pandemic that the U.S. had seen such a steep decline.
- Banks may have tightened lending criteria and high interest rates that prevent people from using their credit cards even when they really want to.
- One economist predicted that these trends would likely continue through 2025.
In a normal month, Americans' total credit card debt increases. When the economy is in trouble, credit card debt plummets. This happened in the Great Recession. The pandemic was the cause. In November, it all happened.
Federal Reserve reported Thursday that the total amount of household revolving credit (primarily, credit card debt), fell $13.8 billion from October to $1.3 trillion in November, following a gain of $15.2 billion in October. This 12% decrease was the biggest one-month drop since 2010 and 2020.
Meanwhile, non-revolving debt, including student loans and car loans, increased, meaning the total of all consumer debts that weren't mortgages fell by $7.5 billion. The decline surprised economists, who expected an increase by $9.1 Billion, according to Dow Jones Newswires’ and The Wall Street Journal’s survey of economists.
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Why did Americans suddenly pay off their debts on credit cards? Economists say it was not a conscious decision.
According to the Fed’s November survey, the banks reduced credit limits for credit cards and increased the credit score requirement. This may have made it harder for some families to accumulate credit card debt even if that was their intention. Credit card demand remained steady over the same time frame.
Shandor Whicher, an economic at Moody’s Analytics said that credit card rates could also deter borrowers. According to Fed figures, credit cards had an average rate of interest in November that was 21.5%. This is just one notch below the record-breaking 21.8% interest rate in August, which was set three decades ago.
“Higher interest rates and tighter lending standards have crimped borrowing,” Whichter wrote. “These factors are expected to limit growth to this pace into 2025.”
In recent years, Americans have used credit cards as a way to pay for purchases because high inflation outpaced the wage growth of lower-income families. In November, Federal Reserve Bank of New York released mixed data regarding credit card debt. Although credit card delinquencies rates had improved slightly in the third-quarter but were still higher than normal levels.
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