It’s looking like more Americans will be paying off their holiday gifts and spending long after the holidays have ended.
That’s due to increased use of credit cards and the growing popularity of other methods of delayed payment.
A big part of the reason why consumers are using plastic to pay for Christmas and other holiday celebrations this year is economic. Inflationary pressures have caused U.S. households to take on more debt this year.
But it also reflects shifts in shopping habits and marketing efforts such as loyalty programs and cash back rewards, as well as widespread Buy Now, Pay Later (BNPL) programs, which are encouraging the use of credit cards and delayed payments.
Forecasters have been surveying consumers about their holiday intentions for decades, and consumers who are feeling strapped due to prices or a tough economy typically say they plan to pay for most of their gifts with cash, in order to stick to a budget. Those pre-holiday intentions often prove unrealistic, with post-holiday statistics showing significant reliance on credit cards.
A CNET survey released last week found that 41% of consumers plan to use cash for holiday purchases, while 46% said they would use debit cards, another form of cash payment.
What’s different this year is that researchers have been seeing credit card use trend upward this year, and that surveys are showing widespread plans to use credit or BNPL in addition to cash.
Consumers carrying more credit card debt
This holiday season, 85.1% of consumers expect to use credit or borrowing to make holiday purchases, Coresight Research reported in its Holiday 2024 Consumer Survey and Retail Outlook. Four out of 10 shoppers expect to put at least half of their spending on credit, according to Coresight Research.
Salesforce reported in its holiday forecast that consumers are taking on more credit card debt as inflation impacts their budgets. According to Salesforce research, 37% of consumers said they are using credit cards more than they did last year, 32% are using Buy Now, Pay Later plans more often, and 43% are carrying more monthly debt.
Total credit card balances, according to the Salesforce report, rose to over $1 trillion in the first quarter of this year, from a low of under $750 billion in 2021.
Households said to be managing credit card debt
The National Retail Federation (NRF) is also reporting increased levels of credit card use but says that most consumers are financially able to manage the debt.
“We’re definitely continuing to see consumers ramp up their credit card spending in particular,” Mark Matthew, Executive Director of Research for the NRF said in an NRF webinar on the 2024 Winter Holiday Consumer Outlook.
While the rising number of defaults and non-performing loans is something the NRF is keeping an eye on, the increased use of credit cards has to be viewed in context, Matthew said.
“It’s important to recognize that consumers are still in a strong position in terms of their ability to afford that debt,” he said.
The NRF is forecasting that total U.S. spending, excluding autos and gasoline, will grow by between 2.5% and 3.5% during the two holiday months of November and December, and reach close to $1 trillion.
The NRF has repeately said it is optimistic heading into the holiday season, citing continued growth in household incomes and savings rates.
Cash-back, loyalty rewards drive card use
A positive economic reason for increased credit card use could be the growing preference on the part of consumers, particularly in the sought-after demographic cohorts of Gen Z and Millennial, for cash-back and loyalty rewards linked to credit cards.
The 2024 Holiday Shopping Trends survey by shopping app Smarty found that 80% of consumers plan to take advantage of cash back offers when making holiday purchases.
A survey by e-commerce tech company Forter found that 78% of Gen Z shoppers and 79% of Millennials said loyalty programs play an important role in their decisions about where to shop and how they pay for it.