American consumers continued to splurge in 2023, boosting the economy with revenge travel, Taylor Swift tickets and expensive restaurant meals. But a lot of it was funded with debt.

Credit card balances in the US increased by about $48 billion in the third quarter alone, pushing the total to $1.08 trillion, according to the New York Federal Reserve. And that was before the holiday shopping season started in earnest. The bills are mounting at time when the average annual percentage rate, or APR, has soared north of 20% to the highest on record.

The health of the US consumer will be closely watched as the US Federal Reserve eyes rate cuts in 2024. With the stock market rebounding this year, and many Americans riding the benefits of higher wagers, there is plenty of data indicating that the economy is strong.

At the same time, an estimated 40% of Americans have drained their pandemic savings to afford ballooning bills. And videos on TikTok are detailing a so-called “silent recession” as millions struggle to keep up with student loan bills, car payments, higher housing costs and elevated grocery bills. That has experts worried that many consumers are increasingly relying on credit cards, and other debt, to cover everyday expenses.

“Consumers have leaned on their available lines of credit for necessities — things we expect consumers to be able to pay with the cash they have on hand,” said Bruce McClary, a spokesperson for the National Foundation for Credit Counseling. “But they’re running out of room.”

One specific area of concern is the increasing popularity of “buy now, pay later” services, which typically allow consumers to pay for purchases in four installments, often with no fee unless a payment is missed. The debt is not reported to credit bureaus, meaning no one knows for sure how much is out there.

Adobe Analytics reported consumers using $67 billion worth of the installment loans this year through Cyber Monday, a 16% increase compared with 2022. Wells Fargo, meanwhile, estimated consumers spent about $46 billion using the products this year.

Delinquency rates for credit cards are just slightly above pre-pandemic levels. But economists warn the outlook on consumer debt is starting to darken. Some banks are reducing credit limits and closing unused lines of credit, an indication that consumer debt won’t play the “locomotive role” it did in driving spending in 2024, according to Tim Quinlan, a senior economist at Wells Fargo.

“It's not only credit cards where consumers are building up debt, there’s student loans, auto loans. If you look at how much interest costs are eating away paychecks, it’s as big as it’s been since 2008,” said Quinlan.  “That’s the worrying measure.”

This article was provided by Bloomberg News.