For credit card lenders, there is good news and bad news when revolving debt accelerates. Right now, the news is not particularly good.
On May 7, the Federal Reserve reported that debt carried over from month to month grew by an annualized rate of 9.1%. This is the highest rate since 2022.
In comparison, the annualized growth rate in January was 2.0%, and in February it slid to 0.3%, so the March surge stands out like a sore thumb for credit managers. This indicates upcoming stress that will impact delinquency rates in the third and fourth quarters of 2026.
Why This Is Bad for Issuers
Credit card issuers will generate plenty of revenue as revolving debt surges, particularly at the average rate of 21.52%. This trend poses a severe risk because it indicates that more cardholders are feeling the pain of persistent inflation at the pump.
Liberty Street Economics, a site maintained by the NY Fed, did a deep dive on the impact of gas prices and how the K-shaped economy is affecting those on the downward plane more than those with money to spare. But it doesn’t take an economist to know that when gas prices climb to their average cost of $4.55 a gallon, up from $3.15 a year ago, the ability to repay $1.3 trillion in revolving credit is going to come under stress.
Yes, credit card lenders will make money on more revolving debt, and of course, interchange will rise. Still, the whiplash will lead to higher delinquencies, which require operational capacity to handle the volume. And then there are charge-offs.
Look at Your Data!
Watch for pattern changes. Whose FICO Scores are deteriorating? Which consumers are revolving now, who did not before? Are food and groceries moving to the credit card? How is the cardholder handling their other obligations?
Javelin Strategy’s advice during the 2022 delinquency glitch was to be proactive about managing consumer credit lines. This still holds. Growth is good, but not to the extent of unanticipated risk. Maybe it is time to reduce credit lines to mitigate risk.
What to Do
Don’t rest on your laurels, celebrating that consumer credit card revenue is on the upswing. When revolving debt moves quickly, and we are not in a holiday season, there is a reason. And when factors indicate stress in the household budget, it means it is time to prepare for a storm.
