Americans Wrecking Credit Drive Lag In Card Use Spending on credit cards is slowing with a new report showing a drastic plunge in consumer debt in the last three months, amid a ‘double whammy’ of banks tightening lending standards and interest rates soaring.

Data from the Federal Reserve illustrates the smallest month-on-month rise in revolving debt, mostly credit cards, since 2021. The sudden fall suggests a top in consumer behavior that dovetails nicely with another report showing that US banks issued fewer credit cards over the first quarter of 2024.

Many economists assume that these trends are related. As unemployment remains high, banks worry that the economy may flounder. In response, they’re tightening their belts, raising credit score requirements, and cutting new card limits.

So do high interest rates. The Federal Reserve’s fight to bring inflation down has boosted the average credit card interest rate to a record high. A balance now costs exponentially more to carry, making it less attractive to borrow and more of a drag on debtors to pay down their debt.

And it’s impossible to say if those trends will persist in the long term. But even if they do, a sustained shift away from credit card debt could slow the economy. Consumer spending, which makes up about two-thirds of the US economy, might cool off. This, in turn, would help keep a lid on inflation, and might even bring the Federal Reserve around to cutting interest rates later this year.

It reflects a growing angst among Americans about how to handle credit card balances amid a tough economic environment, during which both credit availability and interest rates are more stringent than they have been during the past few decades, and when even those who have been unusually heavy users of plastic have begun trimming their debt or at least paying it off as it incurs.

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