Consumers take on more debt

September 8, 2026

Consumer credit outstanding rose 4.2% in July at a seasonally adjusted annualized rate. That follows a 3.4% gain in June. Compared to a year ago, consumer credit increased 2.6%, the eighth straight month of solid gains, with a caveat. Inflation continued to outpace credit growth. 

Revolving debt, which is dominated by credit cards, increased 2.5% in July following a 6% gain in June. Retail sales fell in response to weaker spending on goods. Service sector spending picked up, buoyed by aging demographics. The first baby boomers turned 80 this year, which is adding to the demand for healthcare. 

Personal consumption expenditures (PCE) moved sideways in July, adjusted for inflation. Yet strong gains in prior months mean that consumption is on track to expand in the third quarter. New state-level tax relief lifted personal disposable income in July. That helped move the savings rate up to 3%, from 2.6% in June. June’s rate was the lowest since the peak of inflation in the summer of 2022. 

Lower- and middle-income households continue to be strained. That stress is showing up in how they pay for necessities, including greater reliance on credit cards and buy now, pay later loans. Buy now, pay later loans still make up a small share of total credit outstanding but are growing rapidly.

Nonrevolving debt, which includes car loans, student loans and personal loans, increased 4.8%. That is the largest monthly gain in over three years. Vehicle sales ticked slightly lower in July but surged again in August. Financing rates on vehicles have not risen like other rates; vehicle producers have tried to absorb much of the tariff shock to hold onto buyers. 

Maintenance and vehicle parts costs are rising. Car insurance premiums fell this year; insurers offered rebates or “dividends” to their policyholders. That reflects tort reform and caps on jury awards. The higher parts costs are expected to show up in insurance premiums but with a lag.

Some of the largest defaults have occurred in student loans, especially among older borrowers. Student debt continues to compound as millions of borrowers are transferred into new federal repayment plans this month. Falling credit scores are further limiting access to credit for households already squeezed by higher prices.