Credit card spending has dipped for the third time this year, according to recent data from the Federal Reserve. Credit card balances have also dropped 2.5% in the past 12 months, the largest decline we’ve seen since the height of the COVID-19 pandemic in 2020.
Even as the Fed attempts to curb inflation and promote hiring by cutting rates, consumers are being more cautious with their spending. Credit card spending can be linked to the state of the economy, even painted as a “canary in the coal mine.” These numbers show Americans are being cautious about racking up new credit card debt, pulling back on discretionary spending and focusing on paying down current debt.
To help put things into perspective, the last time credit card spending consistently fell like this was at the end of the Great Recession in 2010 (excluding COVID-19).
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Many experts say our economy is on the verge of recession. “For the first time in years, the number of people seeking work exceeds the number of available jobs,” says Adam Rust, director of financial services at the Consumer Federation of America. “Credit card delinquencies and defaults are (other) leading indicators. When people can’t make the minimum payment on their outstanding balance, it suggests that their finances are in a state of decline.”
This, coupled with the government shutdown and the increase in the cost of goods due to tariffs, leaves many Americans in a state of worry — contributing to an increase in financial anxiety.
With many experts expecting a recession to hit in 2026, preparing your finances is imperative now more than ever. “Times like these underscore the importance of having emergency savings on hand. Unfortunately, many people are living on the edge and do not have that luxury,” says Rust. “For them, the next best choice is to cut back on discretionary spending.”
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Besides bolstering your emergency savings, make sure your budget is also solid. Revisit it, adjust it if necessary and make sure your priorities are sorted. Differentiate essential spending from discretionary spending. For example, I’m cancelling subscriptions to services I know I can live without and drinking more coffee at home — which is torture when you live in Seattle.
You should also focus on paying down your high-interest debt. While the Fed did cut rates in September and plans to continue to do so, credit card interest rates don’t immediately reflect that change or drop very much, for that matter. If you were to unfortunately lose your job, high minimum payments could be difficult to pay down.
While these tips can help prepare your finances for a recession, until the U.S solves this three-pronged problem — inflation, tariffs and unemployment — consumers will continue to struggle.
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Credit Card Time Machine: Americans Are Cutting Back Like 15 Years Ago originally appeared on usnews.com
