Leverage and Borrowing are

a look into how confident consumers are about the economy

Todd Ballenger
July 11, 2025

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“Leverage turns good choices into massive outcomes. Without it, even genius gets stuck on the treadmill.”

Alex Hormozi

Consumers are using less borrowing (leverage) which is usually a sign they are concerned or worried about borrowing - that’s good for the consumer, but often a challenge for the economy

What is Consumer Credit (Leverage) Telling Us About the Economy Right Now?

A Tale of Two Credits: Revolving vs. Non-Revolving

Suppose you look closely at the latest data from the Federal Reserve (FRED charts above). In that case, there’s a story that goes beyond just numbers — it’s a subtle but telling narrative about how American households are maneuvering through an economy that feels increasingly tight.

🔍 The Key Highlights from May:

Total consumer credit rose by only +$5.1 billion. That’s less than half of the expected +$10.6 billion and less than a third of the +$16.9 billion in April.
Revolving credit (primarily credit cards) actually fell -$3.5 billion (-3.2%), marking the first decline since November.
Meanwhile, non-revolving credit (auto, student loans — excluding mortgages) grew by +$8.6 billion (+2.8%).

From a year-over-year perspective:

Revolving credit is now -2.5%, the weakest since April 2021.
Non-revolving credit is up +1.4%, and
Total consumer credit is up a meager +0.4%.

🔬 What Does This Actually Mean?

1️⃣ Consumers Are Pulling Back on Credit Cards

That drop in revolving credit is the most telling. People often use credit cards to smooth over gaps in their budgets. Seeing balances shrink — especially after years of aggressive spending — suggests that either:

Consumers are choosing to pay down debt, tightening belts, or
They’re being forced to, as higher interest rates and tighter lending standards kick in.

This is especially important because revolving balances tend to be the “pressure valve” of household finances. When they decline, it’s often a sign that consumers are pulling back.

2️⃣ But Still Taking Out Loans for “Essential” Big-Ticket Items

The increase in non-revolving debt suggests that people are still borrowing for cars and education — needs that can’t easily be deferred. This also could imply that despite strains, Americans still find ways to finance big purchases. However, it also means households may be loading up on longer-term obligations even as short-term liquidity is drying up.

3️⃣ Growth is Decelerating Dramatically

Look at the chart — the year-over-year change in total consumer credit has collapsed from nearly 10% in 2022 to just +0.4% today. This deceleration typically precedes or accompanies economic slowdowns. It’s a sign of caution that consumers are either tapped out or more wary of taking on new debt.

🧠 The Psychological Side of Credit

When consumers aggressively take on credit card debt, it often means confidence is high: “I’ll pay this off later.” A pullback signals the opposite — people are starting to worry, opting to reduce balances, or simply aren’t qualifying for as much credit.

Banks are also tightening standards. If approvals drop, spending slows, and that feeds directly into GDP.

🔁 Historical Context

Zoom out to the last four years:

2020: Credit growth plummeted during COVID as people stopped spending and paid down debt with stimulus checks.
2021-2022: A surge in spending, aided by low rates and pent-up demand, fueled big jumps in both revolving and non-revolving credit.
Now: The story is reversal. Interest rates have soared, inflation has eaten into disposable income, and households are retrenching.

🔎 So What’s Next? A Few Speculative Predictions

Credit card balances might continue to decline if delinquencies rise and banks keep tightening. This is a typical late-cycle economic warning sign.
Auto and student loans could keep propping up non-revolving, but auto credit is vulnerable if employment softens. The wealthy are still spending.
Expect more muted retail sales: if people aren't leaning on credit cards, that discretionary spending dries up fast and that can be a negative.
The Positive? Lower consumer credit growth could slow the economy enough to push inflation down further, allowing interest rate cuts. Additionally, with lower sales prices on listings, we could see consumer purchases improve, and refinancing pick up to help consumers pay off their credit card debts.

Final Thought: The Consumer is Still the Economy

About 70% of GDP is driven by consumer spending. When we see revolving balances contract and total credit growth stall out, it’s a direct signal that economic momentum is shifting. BUT bad economies lead to lower rates (stimulus) so good for lenders.

✅ Sources:

a BORROW SMART CONCEPT
Understanding the US Federal Debt

Understanding debt as a liability advisor is important; at a minimum, there is macro (the borrowing as a whole) and the micro (your borrowing at your house), and these two are not mutually exclusive.

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