Research and Statistics

Fed: December credit card balances up 7.9 percent


Credit card balances were on the rise once again in December, the Federal Reserve said Friday.

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Credit card balances were on the rise once again in December, the Federal Reserve said Friday.

Revolving debt increased at a 7.9 percent annual pace in December — the biggest monthly increase since April 2014 — up from a 1.3 percent decrease in November, according to the Federal Reserve’s preliminary G.19 report on consumer credit. Revolving debt is predominantly composed of credit card balances.

Total consumer debt rose 5.4 percent in December to approximately $3.31 trillion. Total consumer debt includes car loans, student loans and revolving debt, but excludes mortgages, so it represents the short-term credit obligations consumers hold in a given month. All figures are seasonally adjusted to account for expected fluctuations that may occur, such as back-to-school or holiday seasons.

Average student loan debt is approximately $1.32 trillion, according to the Fed report, a $10.8 billion increase since September, the last time these debt figures were measured. Outstanding auto loan debt totals about $955.5 billion, an increase of $11.7 billion since September.

Conversely, consumer spending declined in December, down $40 billion (0.3 percent) from a revised $58.8 billion increase (0.5 percent) in November, according to the Commerce Department.

While a drop in consumer spending numbers may appear negative, it’s not an unusual occurrence at the end of a year, according to TD Bank economist Andrew Labelle.

“This is the second year in a row with a strong November print, followed by a weak December,” he wrote in a research note to clients. “This may simply suggest that consumers are bringing forward traditional holiday spending one month early.”

On a more positive note, personal income continues to grow at a steady 0.3 percent rate. Consumers are also padding their bank accounts, saving a bit more in December than in November. Personal savings totaled $643.2 billion in December compared to $568.2 billion saved in November, according to newly revised estimates.

Employment figures show promise for year to come
The report of renewed growth in credit card balances follows news that the first month of 2015 saw strong job market growth.

According to January’s employment report, 257,000 jobs were created last month, higher than early predictions of about 230,000, according to the Bloomberg economist consensus forecast.

Adding to the report’s positivity are upward revisions made to November and December job gain numbers, making recent employment gains totaling 147,000 more than previously reported.

“It’s a great report, there’s no question about it,” said Mike Schenk, vice president of economics and statistics at the Credit Union National Association. “About 1 million jobs have been created in the past three months and that’s the fastest three-month gain since 1997.”

Wage growth, which has been consistently sluggish throughout the economic recovery, resumed once again last month after a December decline. Average hourly earnings for all employees increased 12 cents to $24.75 in January, raising the average hourly earnings growth rate over the past year to 2.2 percent, 6 basis points above the annual inflation rate.

Consumers not yet feeling full effects of recent economic growth
While the January jobs report was uniformly positive and a good start to the New Year, consumers are likely only starting to feel the effects of the consistent economic recovery.

“Wage gains were not increasing until really recently,” Schenk said. “It’s rising, but we have a ways to go. It’s been an uneven recovery and people are being conservative and cautious.”

However, such consumer behavior is expected to lessen as the year progresses, so long as overall growth continues.

“Consumer confidence has been rising and rising at pretty healthy rates over the last couple months, but I think we are just getting to the point where people are comfortable with the idea that this growth is sustainable and will probably have positive effects on their lives,” Schenk said.

The Conference Board Consumer Confidence Index rose to its 102.9 in January, its highest level since August 2007 and up from 93.1 in December. The sharp increase is indicative of improving consumer views of current business and labor market conditions and their earnings.

Low gas prices in recent months may also be playing a role in the uptick of consumer confidence now and going forward. The national average for a gallon of regular gas was $2.07 on Feb.  2, according to the U.S. Energy Information Administration, which is $1.22 lower than the national average a year ago.

Expectations are that gas prices will not drastically increase anytime soon, which will continue to give consumers more money to put back into the U.S. economy.

“It’s been sort of like a tax refund in a way but the question is now, is it going to be saved or used to pay down debt or will it be spent?” Schenk said. “Right now, we think it’s likely to be spent.”

As consumers start to really feel the positive financial impact of steady economic growth, the use of credit is likely to pick up even more as well.

“We expect consumers to increasingly become engaged and that means not just more robust spending, but also a comfort level and an increased willingness and ability to spend money on big-ticket items like durable goods, which often require the use of credit,” Schenk added.


See related: Fed keeps rates low amid mixed economic signals, 5 steps to a mortgage-worthy credit profile

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