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March 11, 2025

Consumers continued to take on more debt to start the year. Consumer credit increased 4.3% in January at a seasonally adjusted annual rate. That marks a strong showing. On a year-over-year basis, consumer credit outstanding fell by -0.6%.

Total credit outstanding grew by $18.1 billion after declining over the prior two months. The three-month moving average dropped to -$32 billion, much lower than the 2010s average of $13.6 billion.

Revolving debt, made up primarily of credit cards, grew by 8.2% at an annual rate in January. That builds on a surge in December. Credit card demand grew even though retail sales fell in January due to unseasonably cold weather in the South and increasing strain on lower-income consumer balance sheets.

One survey found that 33% of Americans currently have more credit card debt than savings. However, that is down from 36% over the previous two years. That confirms what the NY Fed has found: in the aggregate, debt-to-income ratios are lower than they were pre-pandemic. That has boosted credit card usage and spending.

One warning signal on the horizon: the end of the moratorium on student debt repayment is starting to feed into credit scores. One credit-score provider found that up to nine million borrowers could see their credit scores drop significantly. That could lead to delinquencies and prevent borrowers from taking out new loans.

Nonrevolving debt, which includes car loans, student loans and personal loans, increased at an annual rate of 3% in January after gaining 5.2% in December. Vehicle sales fell in January after a surge in December, while imports of passenger cars rose due to fears of tariffs.

Demand for autos may increase in the next couple of months to get ahead of tariffs. It is more likely that these purchasers will be higher-income using cash or financing rather than lower-income via an expansion of credit, given the strains on lower-income balance sheets. By one measure, subprime auto borrowers had the highest delinquency rate (60+ days) in over three decades.

The data on consumer credit is not adjusted for inflation. Real consumer credit outstanding ticked lower by -0.14%, the third straight monthly decline.