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, marking the largest decline 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 becoming more cautious with their spending. Credit card spending often reflects the state of the economy and is sometimes referred to as a “canary in the coal mine.” These numbers indicate that Americans are wary of accumulating new credit card debt, pulling back on discretionary purchases, and focusing on paying down existing balances.
To put this into perspective, the last time credit card spending consistently fell like this was at the end of the Great Recession in 2010 (excluding the COVID-19 period).
[Read: 0% Introductory APR Credit Cards]
Many experts warn that our economy is on the verge of another 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. He adds, “Credit card delinquencies and defaults are other leading indicators. When people can’t make the minimum payment on their outstanding balances, it suggests their finances are in decline.”
This situation, coupled with the government shutdown and rising costs of goods due to tariffs, has left many Americans worried, contributing to increased financial anxiety.
With many experts expecting a recession to hit in 2026, now is the time to prepare your finances. “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,” Rust explains. “For them, the next best choice is to cut back on discretionary spending.”
[Read: Best Debt Consolidation Loans]
Besides bolstering your emergency savings, make sure your budget is solid. Revisit and adjust it if necessary, ensuring your spending priorities are clear. Differentiate essential expenses from discretionary ones. For example, I’m cancelling subscriptions to services I can live without and drinking more coffee at home — which is torture when you live in Seattle!
It’s also crucial to focus on paying down high-interest debt. While the Fed cut rates in September and plans to continue doing so, credit card interest rates don’t immediately reflect these changes and rarely drop significantly. High minimum payments can become difficult to manage, especially if you were to lose your job.
While these tips can help prepare your finances for a potential recession, consumers will continue to struggle until the U.S. addresses the three-pronged problem of inflation, tariffs, and unemployment.
**What the Fed Rate Cut Means for Credit Cards: Feeling That Creeping Financial Anxiety?**
https://wtop.com/news/2025/10/credit-card-time-machine-americans-are-cutting-back-like-15-years-ago/
