Consumer Borrowing Unexpectedly Tanked In May Likely Reflecting Growing Stress

After unexpectedly surging in March and April, consumer credit contracted sharply in June. This returns to the trend of declining consumer borrowing we saw last year and into early 2026, likely signaling consumers are close to their credit limits.

This is not good news for an economy that depends on people buying stuff to keep growing.

Total consumer debt remained steady at $5.15 trillion, even as revolving credit, primarily reflecting credit card debt, shrank by 4.7 percent in May.

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 level of debt. As of the end of Q1 2025, total household debt stood at $18.2 trillion.

According to the latest data released by the Federal Reserve, revolving credit fell by -$5.3 billion in May, a 4.7 percent decline. This came on the heels of a 9.7 percent increase in revolving credit balances in March and a 10.4 percent increase in April. The brief surge on borrowing corresponded to a big jump in retail sales, reflecting higher energy prices and heating price inflation. In effect, Americans used their credit cards to keep pace with surging prices as the U.S.-Iran conflict sparked an oil price shock.

Now it appears Americans have put the plastic back in their pockets.

This was the trend before the recent surge in revolving credit balances. Consumer borrowing has generally slowed over the last year and a half after going parabolic through the inflationary period of 2022 and 2023.

Flush with stimulus and locked in their homes, Americans paid down their credit cards during the pandemic. Revolving debt dropped below $1 trillion in 2020.

At the same time, they beefed up their savings. In April 2020, the personal saving rate skyrocketed to 31.8 percent. It was by far the highest level since the 1960s.

Now the savings are gone.

Aggregate savings peaked at $2.1 trillion in August 2021. By June 2023, the San Francisco Fed estimated that aggregate savings had dropped to $190 billion.

In other words, Americans blew through $1.9 trillion in savings in just two years.

By March 2024, the San Francisco Fed estimated that the entirety of those excess savings was gone.

Having blown through their savings, Americans turned to Visa and Mastercard to make ends meet as post-pandemic price inflation spiked. As of the end of May, Americans were buried under $1.34 trillion in revolving debt.

The double whammy of rising debt and interest rates exacerbates the debt problem. The average annual percentage rate (APR) currently stands at 19.57 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.

Non-revolving credit growth also slowed in May, rising by a modest $5.1 billion, a 1.6 percent increase. This reflects borrowing for automobiles, student loans, and other big-ticket items.

Non-revolving debt currently stands at $3.81 trillion.

Non-revolving credit growth has been tepid for well over a year. It averaged around 5 percent before the pandemic but has averaged around 2 percent in recent months. The growth in non-revolving credit reveals consumers have cut back on big-ticket spending to cover the increasing costs of day-to-day necessities.

Given that consumer spending accounts for about two-thirds of U.S. economic activity, any decline in consumer spending power is a worrisome trend.

Stressed Consumers

The slowdown in borrowing isn’t the only sign of consumer stress. We’re also seeing a rise in delinquencies.

According to the latest New York Fed data, 13.1 percent of credit card balances are at least 90 days overdue. That’s the highest level since the late stages of the Great Recession.

Serious credit card delinquencies have climbed by 5.5 percent since the third quarter of 2022. That’s a faster deterioration pace than what we saw during the 2007-2010 period.

According to NY Fed data, credit card balances ticked down in Q1 2026. This indicates that consumers have slowed their pace of debt accumulation (It’s hard to charge it when you’ve hit your credit limit) even as they are struggling to service their existing debt.

Lower-income Americans are feeling the biggest pinch. However, affluent areas are also charting a rise in delinquency.

LegalShield’s Consumer Stress Legal Index (CSLI) also reflects consumer strain that “has settled into a new normal for American households,” according to a LegalShield spokesperson.

The CSLI dipped in Q1 2026 compared to the fourth quarter of 2025. However, the index was 11.6 percent higher than a year ago.

According to the report, the quarter-on-quarter dip was “largely due to seasonal tax refund relief in the Consumer Finance sector.”

“The index remains at an elevated level consistent with sustained, broad-based financial distress.”

The LegalShield Bankruptcy subindex was up 2 percent in Q1, charting an 8 percent increase year over year. According to LegalShield, its bankruptcy data has historically served as a leading indicator, preceding actual non-business bankruptcy filings by two quarters with a .95 correlation since 2006.

The Foreclosure subindex was up 20.3 percent year-over-year. That was the highest level since the onset of the pandemic in March 2020. LegalShield called it “the sharpest signal of distress in the current economy.”

“Homeowners are facing severe payment shock driven by escrow resets. National homeowners’ insurance premiums rose 70 percent between 2019 and 2025, now accounting for 14 percent of the average monthly mortgage payment. The principal isn't the problem; the total monthly obligation has quietly reset higher.”

So, when you see mainstream reports touting the “strong consumer,” take them with a grain of salt. Ask yourself, “What data points are they missing or just ignoring?” Because taken as a whole, the data points to a consumer at the end of his proverbial rope.

This underscores a broader point. An economy built on borrowing and spending money for stuff isn’t sustainable. At some point, consumers will crack under the pressure, taking this debt-riddled bubble economy down with them.