Consumer Card Debt Paydowns May Prove Temporary Amid Tariff and Inflation Uncertainty

In May, the pace of consumer credit, overall, decelerated. And in one positive sign, credit card balances decreased for the first time in since the end of last year, before the holiday shopping deluge.

But the trimming of card balances may be a temporary move, given spending plans through the next year, sticky inflation and an uncertain outlook for tariffs. 

The Federal Reserve released data Tuesday (July 8), in its G19 report, that showed total credit bumped $5.1 billion higher in May, down from a nearly $17 billion surge in April. In terms of percentage gains, the annualized rate was 1.2%, down from 4% in April. 

In terms of the puts and takes, non-revolving credit, which includes auto loans and student loans, was responsible for the bump higher, adding 2.8%. The specter of tariffs had pushed consumers to buy bigger ticket items, such as cars, to get under the wire, so to speak.

The newest data marks a return to the overall level of debt increases that, on average in Q1, saw a 1.2% increase — half the pace of the two quarters prior.

Revolving credit (which includes but is not limited solely to cards) decreased for the first time since November 2024 at an annual rate of 3.2%. This marks a sharp reversal from the 3.1% increase in Q1 and the 6.9% rise in April.

As for the terms of credit, most financial products do not yet evidence any significant improvement in affordability: credit card APRs averaged 21.2% in May, marking an only slight decline compared to the Q4 2025 and Q1 2025 averages (21.5% and 21.4% respectively). A similar trend is evidenced for personal loans: average rates for 24-month loans stand at 11.6%, roughly unchanged from Q1. 

The absolute dollar amounts on the revolving credit outstanding dipped from $1.30 trillion in April to $1.29 trillion in May. It’s a small haircut but a haircut nonetheless.

The mean probability of missing minimum debt payment over the next three months is down to a yearlong minimum of 12%.

Data from the New York Fed released Tuesday through its survey of Consumer Expectations shows that still a higher portion of consumers asses their financial situation as worse off compared to a year ago than those who believe it has improved (33.9% vs 20.8%), while the same is true for forward-looking beliefs: 31.7% believe their household finances will deteriorate, while 27.8% believe they will improve.

This seems highly associated with credit availability: 41% believe it is harder or much harder to get credit compared to a year ago (only 10.6% consider it to be easier) while 44.2% think it will be harder in the year ahead (11.2% think it will be easier).

PYMNTS noted Tuesday that consumers see inflation at about 3% through the near-term horizon but that core essentials such as food will likely see greater price increases, and spending plans are projecting a nearly 5% gain, outpacing income and earnings. 

Given that backdrop, consumers may have been trimming their card balances to have some additional spending power at the ready. In addition, having lower revolving debt on hand to improves credit utilization percentages (a key component of credit scoring) to make it a bit easier to gain access to credit should it be needed.

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