U.S. consumer borrowing rose by about $27.8 billion in September, and revolving credit accounted for nearly three-fifths of the increase. That category includes credit cards. The Federal Reserve’s Nov. 6 release puts total outstanding consumer credit at about $5.22 trillion, excluding loans secured by real estate.
September’s jump followed a smaller increase in August, when revolving credit actually fell. The Fed’s figures are a snapshot of how much households owed before holiday shopping. They cannot tell you what you’ll pay to carry a balance into January. For that, look at the interest rate, the way your card applies it and the date your payment is due.
What changed in September
Revolving credit rose from about $1.352 trillion in August to $1.369 trillion in September, a gain of roughly $16.3 billion. Nonrevolving credit, which includes auto and student loans, rose about $11.5 billion. Together, those changes give the roughly $27.8 billion increase. August’s gain was about $8.2 billion, even as revolving credit fell by about $4.9 billion.
The Fed also reported September’s total growth as a 6.4% annual rate. That expresses the pace of a single month on an annual basis. The actual change from August to September was about 0.54% of the August balance. The report’s 14.5% figure for revolving credit is also an annualized growth rate. Your card’s APR is a separate number that measures the cost of borrowing on your account. Over the full third quarter, consumer credit grew at a 4.2% annual rate, slower than September’s pace.
Revolving balances can include recent charges a customer will pay off in full, as well as debt carried from one month to the next. The report does not divide its September increase between those groups. It also cannot show whether a particular household took on more debt or why.
What a carried balance can cost
The Fed reported an average rate of 22.36% for commercial-bank credit card accounts assessed interest in the third quarter. Its broader average for all surveyed card accounts was 21.19%. The higher figure is the more relevant benchmark if you carry a balance, but use the purchase APR on your own statement when you work out the cost.
Suppose a $1,000 purchase stays on your card for a month at a 22.36% APR. Dividing the annual rate by 12 gives a rough one-month interest estimate of $18.63. At 29.99%, the same balance would cost about $24.99 for a month, or about $6.36 more. These estimates assume the balance stays flat and exclude fees. Actual interest can differ because issuers may use a daily rate and account for payments or new purchases during the billing cycle. The Consumer Financial Protection Bureau explains the terms you’re likely to see on a statement.
Check the grace period before the next purchase
The CFPB says that most credit cards give a grace period for purchases. If yours does and you aren’t carrying a balance, paying the statement balance in full by the due date can keep purchase interest at zero. If you carry a balance, you may lose that grace period and start paying interest on new purchases from the transaction date. Cash advances generally start accruing interest immediately.
Two amounts on the bill answer different questions. The minimum payment is what you need to pay to keep the account current for that cycle. The statement balance tells you how much was owed when the cycle closed. If the minimum is all you can pay this month, check the statement’s payoff disclosure before adding another purchase. It shows how long your existing balance could take to pay off if you make only minimum payments and stop adding charges.
