U.S. consumers’ total revolving debt balances fell by about $100 million in June compared with May, while overall debt increased by more than $14 billion in the same period, according to a monthly Fed report.
Revolving credit accounts include credit cards and other lines of credit, while total consumer debt includes student loans and auto loans.
The Fed report, which was released last week, comes amid mixed signals for the U.S. economy. Recent data show consumer credit card delinquencies fell in the first few months of the year — good news. But the Federal Reserve recently cut interest rates for the first time in more than a decade in response to weakening growth among global economies and an ongoing trade dispute with China — not-so-great news.
Read on to learn how falling debt for revolving accounts could affect you and what broader implications it could have for the economy.
Want to know more?
Why did balances on revolving accounts dip?
Even though Americans’ outstanding debt on revolving accounts fell in June, nonrevolving accounts — which include auto loans and student loans — rose. So why the decline in some types of debt but not others?
It’s not unusual to see big swings in revolving debt compared with nonrevolving debt. There have been several times in the past year when revolving debt balances fell. If you think about how credit cards work, this makes sense. People’s spending on credit cards often varies month to month, so the amount they carry as a balance varies as well.
Why does this matter?
For the average consumer, it might be hard to see why changes in debt balances are important. But if banks see total debt rising, they could respond by tightening lending standards for some types of loans.
In fact, recent Federal Reserve survey data among senior bank loan officers indicate that some banks are doing just that — maintaining their lending standards for nonrevolving loans while making it tougher to get approved for credit cards.
What’s next?
There’s more important debt data coming out this week with the New York Federal Reserve releasing its quarterly U.S. household debt report. We’ll be covering this report soon, so check back for more financial news.