Fed Survey Sees Credit-Card Appetite at a Four-Year Peak as Borrowing Pressures Build

Quick Read

• Credit-card borrowing demand rose to its strongest level in four years, while mortgage and auto-loan demand softened as higher prices steer households toward revolving debt.

• With average APRs near 21%, carrying a $5,000 balance costs about $1,060 a year in interest, or roughly $334 more than it did in November 2021.

• Banks are trimming credit lines and showing a preference for higher-score borrowers, so a 0% balance transfer, tighter budgeting, and a modest cash buffer can help.

Families Are Turning to Plastic Instead of Big Loans

The Federal Reserve’s latest survey of bank loan officers shows a clear shift in household borrowing. Demand for credit-card debt strengthened at the fastest pace in four years, while mortgage and auto-loan demand both weakened.

The divide suggests consumers are stepping back from large financed purchases and relying more heavily on revolving credit. Banks themselves linked the change to prices: about 41% of respondents said shifts in the prices of goods and services boosted card demand, while only around 6% said those price changes reduced it.

If you have been charging groceries, insurance premiums, or a utility bill and telling yourself you will catch up next month, you are part of this pattern. The numbers below show the environment:

Credit-card balances are also close to a record high, and consumer sentiment has slipped to 48.1, below the 60 mark often associated with recessions. People are feeling worse about their finances and leaning more on borrowing to make it through the month.

------

Learn 13 Major Retirement Mistakes and Ways To Avoid Them

One investment mistake could create big risks for your retirement. Many investors make the same critical errors: being too conservative, making big bets on “sure things,” or paying excessive fees. Any of those blunders can endanger your hard-earned savings.

Now you can learn the mistakes even experienced investors make (and ways you can sidestep them before it’s too late) with this new guide: 13 Retirement Mistakes and How to Avoid Them from Fisher Investments. Access your complimentary copy here (sponsor)

------

Why a 21% APR Can Turn a $5,000 Balance Into a $1,060 Annual Cost

In this environment, the interest rate is the key issue. The average APR on credit-card plans was 21% in the Fed’s latest reading. At that rate, a $5,000 balance generates about $1,060 in yearly interest, or roughly $88 a month, before you reduce the principal at all.

Back in November 2021, the average rate stood at 15%, which meant the same balance cost about $726 a year. Holding identical debt now costs around $334 more each year.

Fed rate cuts will not erase that gap. The fed funds rate has fallen to 4% from a 5% peak, but card APRs have barely budged because issuers price them at the prime rate plus a wide spread. Every dollar not repaid during the grace period, before interest begins, still costs about 21% a year. No savings account matches that, and few investments reliably do.

Credit access is tightening at the same time. Banks said they were less willing to approve subprime applications and that they are reducing credit limits. Delinquencies have eased to 2.9% from a 3.2% peak in 2024, suggesting repayment stress has improved overall. Even so, the squeeze is likely to hit borrowers whose credit lines are cut just when they need them most.

Three Ways Forward — and the Option That Quietly Costs the Most

Move the balance to a 0% promotional card. Balance-transfer offers usually come with a one-time fee, often 3% to 5% according to the terms of the offer. On a $5,000 balance, that works out to roughly $150 to $250, which is still well below a year of interest. This approach works best for borrowers with good credit who can pay off the balance before the promotional period ends. Banks are currently more willing to approve prime and super-prime applicants, so people with stronger scores may have the best shot.

Eliminate the monthly shortfall at its source. If the card is covering the same gap every month, a transfer only delays the problem. Look for the recurring shortfall by shopping for better insurance, renegotiating bills, or trimming one fixed expense, then close the gap. It may take longer, but it is the only option that prevents the balance from growing again.

Pay the minimum and wait for prices to cool. For most people, this is the weakest choice. Consumer prices are still rising by about 4% a year, so waiting for relief can mean paying around $88 a month in interest with no clear end in sight.

What to Review This Month Before Your Credit Line Shrinks

1. Track your balance trend. Review your last three statements. If the balance rose each month, the shortfall is structural, and fixing the budget should come before any refinancing step.

2. Use your credit score while it still helps. Lenders are favoring higher-score borrowers. Rising utilization, or how much of your limit you are using, can pull scores down, which makes a balance transfer easier to obtain now than later.

3. Do not treat your credit line as an emergency fund. That is the most expensive mistake in this environment. Banks are reducing limits, and a line can shrink right when a car repair or job loss hits. Even a small cash reserve, such as $500, can provide a buffer a bank cannot remove.

Help Avoid These 13 Retirement Mistakes Before They Derail Your Future

One investment mistake could create big risks for your retirement. Many investors make the same critical errors: being too conservative, making big bets on “sure things,” or paying excessive fees. Any of those blunders can endanger your hard-earned savings.

Now you can learn the mistakes even experienced investors make (and ways you can sidestep them before it’s too late) with this new guide: 13 Retirement Mistakes and How to Avoid Them from Fisher Investments. (sponsor)