Most consumers plan to take on debt this holiday season
Oh, the holidays, the parties, the gifts. The debt.
A survey by Debt.com shows 66% of Americans plan to take on debt for their holiday shopping this year, a trend mostly driven by the rising use of credit cards and buy now, pay later (BNPL) services.
According to Debt.com’s 2024 Annual Holiday Shopping Survey, 88% of respondents plan to use credit cards for their holiday shopping, and 69% plan to use both credit cards and BNPL. Among BNPL users, clothing is the most popular item to finance (62%), followed by electronics (46%) and jewelry (45%).
One in four respondents said they expect to take on at least $900 in debt to cover holiday expenses.
- 26% expect to take on $100 to $300 in holiday debt
- 13% estimate $300 to $500 in debt
- 17% plan to accrue $500 to $700 in debt
- 19% foresee $700 to $900 in debt
- 15% anticipate $900 to $1,000 in debt
- 10% expect more than $1,000 in holiday debt
Puerto Rico consumers
Although a similar survey for Puerto Rico is not available, recent local debt data indicates that local consumers are likely to take on additional debt this holiday season.
Local consumer debt for fiscal 2023 was 47.3%, meaning that 47.3 cents of each dollar earned by consumers was tied up in debt, up from 45% in 2021, Leslie Adames, director of analysis and economic policy at Estudios Técnicos, told News is my Business.
During the COVID-19 pandemic, global supply chain issues, business interruptions, labor shortages, and a variety of restrictions affected supply and demand, creating pent-up demand that drove consumer spending once the economy reopened.
In 2020 and 2021, several pandemic-related economic impact payments, or stimulus checks, issued by the federal government added $13 billion to the local economy.
“People started using the stimulus money to buy Jet Skis, boats, luxury cars, but by fiscal 2022/2023, the stimulus money was running out, and inflation started taking a bigger bite out of their paychecks. Now, consumers who would otherwise not qualify for those purchases aren’t able to keep up with the payments,” Adames explained.
Consequently, more consumers are relying on credit cards to support their spending, a worrisome trend given the notoriously high interest rates of credit cards, he added.
The average credit card annual percentage rate (APR) for November 2024 was 24.62%, according to Investopedia, which tracks more than 300 credit card interest rates monthly. In February 2020, right before the pandemic, the average APR was 15.09%, according to data from the Federal Reserve Bank of St. Louis. (Credit score and credit history largely determine each person’s credit card interest rate.)
In the first quarter (Q1) of 2024 (the most recent data), commercial bank credit card debt in Puerto Rico was $1.5 billion, up from $1.2 billion in 2020. At credit unions, credit card debt rose from $104 million in Q1 2024 to $112 million in Q2, according to data from Estudios Técnicos.
Many consumers are maxing out their credit cards despite their inability to repay the debt, increasing the risk of delinquency and bankruptcies.
“An excess of liquidity (from the stimulus checks) plus an excess of consumption combined with inflationary pressures, a lack of significant adjustment in prices, and increased credit card debt has led to a rise in debt delinquency, repossessed cars and bankruptcies,” Adames said.
Car repossessions in the U.S. were up 23% as of July this year versus 2023 and 14% compared with pre-pandemic levels, according to a report (video presentation) by Cox Automotive.
Adames mentioned Christmas bonuses as funds that many consumers depend on for their holiday shopping. He said that many families are opting for gift exchanges instead of everyone buying gifts for everyone, and some use Christmas club bank accounts to save throughout the year.
AI says “spend”
Artificial intelligence is influencing holiday spending.
Debt.com asked survey respondents: If artificial intelligence “recommends ideal gifts for your loved ones, will you spend more to finance your holiday shopping?” A notable 65% said “yes,” and 26% said they would incur debt to buy these gifts. Less than a third (29%) said they would not increase spending or finance purchases recommended by AI.
According to the survey, AI gift recommendations will encourage 42% of holiday shoppers to spend an additional $500 to $900 this year.
- 17% plan to spend $100 to $300 more
- 12% anticipate an additional $300 to $500
- 21% expect to spend $500 to $700 more
- 21% plan to spend an extra $700 to $900
- 19% think they will spend $900 to $1,000 more
- 10% expect to spend more than $1,000
Credit cards are the most common financing option for AI-recommended gifts, used by 80% of survey respondents, followed by BNPL (65%), retail store credit cards (59%) and payday loans (58%).
“Holiday shopping debt is nothing new, but the intersection of AI technology and BNPL financing is a unique challenge this year,” Howard Dvorkin, CPA and chairman of Debt.com, said in a statement.
“AI-driven recommendations are incredibly persuasive, and BNPL options make financing large purchases deceptively simple. While these tools can be helpful, they also demand greater discipline from consumers,” Dvorkin said, describing AI and BNPL as the “perfect storm for debt that consumers will still be paying off long after the holiday lights come down.”
Debt.com is a consumer website that provides resources for managing debt, credit repair, bankruptcy and more.
