As the holidays approached, many Americans were already saddled with record-breaking credit card debt. And yet, consumer spending is expected to hit a new high this season.
The National Retail Federation reported last week that spending between Nov. 1 and Dec. 31 is “clearly on track” to hit a record high, between $979.5 billion and $989 billion.
“Increasing employment and wages, modest inflation and a healthy balance sheet have led to strong holiday spending,” NRF Chief Economist Jack Kleinhenz said in a statement.
But other reports show that many shoppers are increasingly turning to credit cards to manage their holiday purchases.
To that point, 36% of consumers have gone into debt this season, according to a recent report from LendingTree. And those who fell into the red accumulated an average of $1,181, up from $1,028 in 2023, according to the survey of more than 2,000 adults.
“No one should be surprised that so many Americans fell into debt this holiday season. Prices are still very high and that means many Americans simply had no choice,” said Matt Schulz, chief credit analyst at LendingTree.
“Inflation remains a big problem in this country and is having a huge impact on people’s finances, including holiday spending,” he said.
Credit card debt is at an all-time high
Heading into the peak holiday shopping season, credit card balances were already 8.1% higher than a year ago, according to the Federal Reserve Bank of New York’s report on household debt.
Additionally, 28% of credit card users had not paid for gifts they bought last year, according to another holiday spending report from NerdWallet, which surveyed more than 1,700 adults in September.
In some cases, Americans’ willingness to spend is a sign of confidence, Schulz said. “Some probably went into debt because they had no other choice, while others did so because they wanted to splurge a little and didn’t mind paying a little more interest to get what they or their loved one really wanted. .”
However, credit cards are still one of the most expensive ways to borrow money. The average credit card rate is currently over 20%, near an all-time high. The APRs on some retail cards are even higher.
The problem of credit cards
Of those with debt, 21% expect it will take five months or more to pay it off, LendingTree also found. At that rate, the very high interest rates will take a heavy toll, according to Schulz.
“That means less money to put toward other big goals for the new year, like growing an emergency fund or saving for college,” he said. “In more extreme cases, it may mean you are less able to pay essential bills or keep food on the table. In any case, it is a big problem.”