Consumers were not shy about loading up on the cards in May.
The latest data from the Federal Reserve, released Monday (July 8), show that overall, consumer credit rose $11.3 billion in June, far outstripping the $6.5 billion gain on an absolute and annualized basis. That’s a 2.7% annualized surge.
But revolving credit — which includes credit cards — notched a 6.3% annualized gain in the month, and now stands at $1.3 trillion. Non-revolving credit, tied to auto loans and student debt, gained 1.4% annualized.
The Fed’s data noted that interest charged on credit card debt in May stood at a 21.5%, where that rate had been 15% before the pandemic. The revolving debt’s held mostly by depositary institutions, at $1.1 trillion of the $1.3 trillion reported.
PYMNTS Intelligence data showed credit cards remain a key and preferred payment method, especially when it comes to everyday spending. Our research indicates that within the various categories of credit profiles, of the 43% of consumers who revolve their credit, 51% live paycheck to paycheck without issues paying their bills, while 65% of those with issues making ends meet do so.
Within the category of “necessary financers,” those consumers spend $92.64 on groceries with credit cards. The use of credit as a lifeline is underscored by the fact that, as we found, more than six in 10 U.S. consumers who earn below $50,000 annually have less than $500 on hand for medical emergencies.
There may be some warning signs in the mix. As noted here, amid continued pressure on the paycheck-to-paycheck economy, more consumers are making only the minimum payments on their credit cards.
Accounts that are 30-plus days and 60-plus days past due have hit a high not seen in 11 years, according to fourth-quarter 2023 data from the Federal Reserve Bank of Philadelphia.
PYMNTS’ Intelligence data from December indicated that 57% of credit cards are owned by paycheck-to-paycheck consumers. The same study found that 43% of consumers at least occasionally revolve their credit card balances, while 65% of struggling consumers do so, representing a rise from 59% seen at the end of 2022.
Forty-five percent of bridge millennials and nearly 41% of millennials revolve their balances. Nearly one in three Generation X borrowers reached their credit limits in the past year.
Part of the May surge might be explained by travel-related spending, which may be corroborated by bank earnings later this week.
Headed into the summer months, PYMNTS found that more than a third of consumers turned to credit products to manage their finances, while 21% of them used credit products as their top strategy.
PYMNTS Intelligence also found that 27% of consumers turn to credit cards when they are faced with unexpected expenses totaling $5,000 or more.
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