:max_bytes(150000):strip_icc():format(jpeg)/GettyImages-2192426421-5a641c64293c431b877aa974fa8647cf.jpg)
Key Takeaways
- Total U.S. credit card debt fell 12% at an annualized rate in November, a plunge not seen since the onset of the pandemic.
- High interest rates and tightening lending standards by banks may be preventing people from using credit cards, even if they want to.
- Those trends are likely to continue into 2025, one economist said.
In a normal month, Americans’ total credit card debt increases. But when something goes wrong with the economy, it plummets. It happened during the Great Recession. It happened when the pandemic hit. And it happened in November.
The total amount of revolving debt (mainly credit card debt) held by U.S. households fell by $13.8 billion in November from October to $1.36 trillion, on the heels of a $15.2 billion gain in October, the Federal Reserve said Thursday. The 12% annualized decrease in total credit card debt was the largest one-month dip since 2020 and before that, 2010.
Meanwhile, non-revolving debt, including student loans and car loans, increased, meaning the total of all consumer debts that weren’t mortgages fell by $7.5 billion. The drop surprised forecasters, who had expected an increase of $9.1 billion, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal.
So, What Happened?
Why did Americans suddenly decide to pay off their credit card debts? It may not have been by choice, economists said.
In the third quarter, banks lowered credit limits and raised credit score requirements for credit cards, according to a November survey of loan officers by the Fed. That may have limited the ability of some households to run up credit card debt, even if they had wanted to. Over the same time period, consumer demand for credit cards held steady.
Shandor Whitcher, an economist at Moody’s Analytics, said in a commentary that high credit card interest rates may also be deterring borrowers. According to the Fed, the average interest rate for a credit card in November was a punishing 21.5%. That’s just a notch off the three-decade high of 21.8% in August.
“Higher interest rates and tighter lending standards have crimped borrowing,” Whichter wrote. “These factors are expected to limit growth to this pace into 2025.”
Americans have relied on credit cards to fund purchases over the past few years as high inflation has outpaced wage growth for lower-income households. Recent data on credit card debt has been mixed: credit card delinquency rates improved in the third quarter but were still elevated above normal levels, the Federal Reserve Bank of New York said in a November report.
