Consumer Borrowing Jumps by Record $40.8 Billion

U.S. consumer borrowing saw a surprise surge in December, the largest increase on record.

Total credit rose by $40.8 billion following a $5.4 billion decline the month before, according to Federal Reserve data released Friday (Feb. 7).

A report by Bloomberg News says this increase — reflecting huge jumps in credit card balances and non-revolving credit — exceeded all estimates by the economists the news outlet surveyed.

Outstanding credit card and other revolving debt rose by $22.9 billion in December, while non-revolving credit, such as auto or student loans, increased $18 billion, the most in two years, per the Bloomberg report.

The news comes as cash-strapped consumers increasingly turn to credit to survive, as shown in the PYMNTS Intelligence report “Financial Lifestyles Shape Credit Reliance.”

“For consumers who are struggling to pay bills, credit is often more than a convenience — it is a necessity,” PYMNTS wrote last week. “While 21% of overall credit users reported that they would not have been able to afford essential expenses without using credit, this number jumps dramatically for those living paycheck to paycheck with difficulty paying bills.”

A “staggering” 43% of credit users in this group, that report added, said they were unable to afford essential expenses without credit, a number that underlines the importance of credit as a lifeline for people facing financial instability.

Another PYMNTS Intelligence report, “BNPL and Embedded Finance Reshaping Consumers’ Credit Choices,” found that these additional credit products are reshaping how consumers manage everyday expenses and bigger purchases, with upwards of half of all consumers now using credit to cover their grocery bill.

“Different credit products appeal to consumers for various reasons,” PYMNTS wrote recently. “Credit card users often prioritize rewards, with 35% citing rewards as their main motivator for using credit cards for essential purchases.”

By contrast, buy now, pay later (BNPL) users tend to go with its option because of its familiarity, with 41% of BNPL users picking it for essential expenses because they feel comfortable with this method of payment.

Although credit cards dominate for essentials, personal loans and BNPL are more likely to be employed for larger or less frequent purchases. The report found that 16% of consumers used credit for household furnishings, while 15% used it to pay for electronics and appliances.

“The adoption of credit across a range of purchases shows how essential financial flexibility has become in modern consumer habits,” PYMNTS wrote.