Consumers Are Becoming More Selective About How They Use Credit
Consumer Borrowing Is Still Growing, but More Slowly
U.S. consumer credit continued to grow in August, but at a much slower pace. According to Federal Reserve data, total consumer credit expanded at an annual rate of 1.9%, less than half of July's revised 4.1% pace. Outstanding consumer credit reached about $5.2 trillion. The bigger story is not how much people borrowed, but which types of credit they chose.
Credit Card Balances Moved Lower
Revolving credit, which includes credit card balances, fell at an annual rate of 4.2% after growing 2.5% in July. Balances dropped to $1.352 trillion, pulling back from the record high set a month earlier. It was the steepest monthly decline in at least a year. Consumers appear to be easing off the type of borrowing they can adjust most easily from month to month.
Loans With Set Payments Kept Growing
Nonrevolving credit, which includes auto and student loans, grew at a 4.1% annual rate. Some of that increase reflects timing, since student loan funds are typically released before the fall term. Still, it shows continued demand for borrowing with a fixed repayment schedule. Balances in this category reached $3.844 trillion.
Shoppers Are Turning to Instalment Plans
This pattern matches how consumers are choosing to pay. PYMNTS Intelligence research shows the share of consumers using credit card instalment plans rose from 23% in April 2025 to 36% by March 2026. Buy now, pay later use held steady at around 15% over the same period. Instalment plans let shoppers split a purchase into scheduled payments instead of leaving it on an open balance.
Rising Borrowing Costs Are Shaping Decisions
The cost of carrying debt is a big reason consumers are being more careful. The average APR on credit card accounts charged interest rose to 22.36% in the third quarter, up from 22.15%. New car loans also became more expensive, with average 60-month rates climbing to 7.54% from 7.14%. Higher costs give households more reason to think twice before adding to a balance.
Many Households Are Pulling Back on Extras
Financial pressure is also changing everyday spending. Among paycheck-to-paycheck consumers who struggle to pay their bills, 53% say they cut back on dining, entertainment, travel and other nonessentials over the past year, while only 23% say they spent more. One month of data does not prove a lasting change, since card borrowing has moved up and down throughout the year. Even so, the direction is worth watching.
What This Means for Businesses
Consumers are not giving up on credit. They are becoming more selective about how they use it and how they pay it back. For businesses, that makes flexible payment options at checkout more important, including instalment plans that help customers manage larger purchases. The right payment setup, and a partner who can help adjust it as habits change, makes it easier to keep customers buying.
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