Americans are starting to pull back from a pandemic-era credit-card binge.
After a surge in credit-card spending that pushed Americans’ card balances above $1 trillion, growth is now moderating. Credit-card spending has been growing more slowly than debit-card spending since late last year, the first such stretch in nearly four years, according to the latest spending data from Visa and Mastercard.
Credit-card originations had soared during the recent period of high inflation. That allowed Americans to keep spending on discretionary items even after money ran out from pandemic stimulus payments.
More recently, household budgets have been under pressure on several fronts, from the resumption of student-loan payments to high credit-card interest rates. In that environment, some card companies are becoming pickier about whom they offer cards to, focusing on well-heeled customers. Consumers are growing more cautious about taking on new debt.
“We saw this meteoric rise in credit-card debt,” said Charlie Wise, senior vice president at TransUnion, a credit-reporting bureau. “We’re seeing consumers rein themselves in.”
Ciara Zurita-Jackson said she cut up her American Express Gold Card in February, deleted all the virtual-card numbers from her smartphone and stowed the rest of her 28 cards in a wallet she doesn’t use. After racking up $72,000 in credit-card debt, her monthly payments had swelled to $2,800, she said. That was more than her mortgage and car loan combined.
The 27-year-old medical-sales representative from San Antonio had gone on a three-year shopping spree that included a $6,700 water softener, $4,000 for Christmas gifts and food, and trips to Miami and Orlando, Fla. She took banks up on their introductory offers and points, and felt as though she was staying ahead by making minimum payments.
“I was seeing credit cards as monopoly money,” said Zurita-Jackson, who has paid off $30,000 in the six months since abandoning credit. She now relies on cash and a debit card.
Debit-card growth surged during the Covid-19 pandemic. More people started paying digitally through contactless cards or through apps, including for everyday purchases such as food. People also used debit cards to collect and spend government stimulus.
Meanwhile, use of credit cards initially shrank when the economy contracted. Then that, too, surged, as activities such as travel roared back, bolstering discretionary spending. Credit-card spending grew more than seven times as fast as debit-card spending in 2022.
Spending on both credit and debit cards is still rising. But in the first six months of this year, U.S. debit-card spending—which typically accounts for a little more than half of all card payments—rose 6.57% from a year earlier. Credit-card spending, by comparison, rose 5.65%, the Visa and Mastercard data shows.
When credit-card spending growth began trailing debit late last year, it ended a streak of 14 consecutive quarters in which the opposite was true. It is a reversion to the prepandemic norm.
Slower balance growth and a drop in delinquency rates from a year earlier suggest consumers are actively managing their debt, according to a TransUnion study released Thursday.
Another sign that more Americans are taking a hard look at their finances is a recent surge in personal loans typically used to consolidate credit-card debt. Personal-loan originations jumped 18% in the first quarter from a year earlier, bringing total balances to a record $257 billion.
These loans have become particularly attractive for people looking to get out of credit-card debt. Credit-card interest rates hover around 22% on average. The share of Americans only making the minimum payments on credit cards is near a record, according to the most recent data from the Federal Reserve Bank of Philadelphia.
Many of those borrowers are looking for breathing room as rising rates make revolving debt harder to manage. But relief can be temporary. A separate TransUnion study found that while borrowers who consolidate card debt into personal loans initially reduce their card balances by an average of 57%, many refill those cards within 18 months.
Even consumers who are trying to tighten their belts might be tempted by a particularly attractive credit-card offer. Zurita-Jackson said a card with no annual fee and more generous cash-back incentives might sway her.
For now, she is giving priority to her savings account.
“I am now addicted to putting money in there and seeing how much interest the bank pays us,” she said.
Write to Imani Moise at imani.moise@wsj.com and Dalvin Brown at dalvin.brown@wsj.com
