This holiday season, potential shoppers may face tighter credit limits and a more cautious approach to spending.
In July, a digital marketplace bank LendingClub study revealed that 61% of U.S. consumers were living paycheck to paycheck, marking a 2-percentage-point increase compared to the previous year. This financial strain was evident across all income brackets, indicating a broad economic challenge.
While credit cards have served as a lifeline for many Americans amidst rising prices over the past couple of years, they have also contributed to a record-high collective balance of $1.03 trillion, according to the New York Federal Reserve Bank’s Q2 report on household debt.
Last year, consumers added a staggering $116 billion in new credit card debt, with a significant portion, $88.4 billion, accumulated during the holiday quarter, as reported by WalletHub. This trend continued into this year’s Q2, which saw the second-largest increase ever for that period, totaling $43 billion. Much of this increase was driven by discretionary spending, as identified by LendingClub.
With rising interest rates in the current inflationary environment, consumers are finding it increasingly challenging to pay off their credit card balances. In fact, over half of respondents surveyed by Bankrate indicated that they expect to use a credit card for at least some of their holiday purchases, with 19% willing to take on additional debt.
However, the reluctance to rely on credit cards is likely to prevail among many consumers, especially those still grappling with balances from the previous year’s holiday season. Meghann Martindale, Head of Retail Research at Madison Marquette, predicts that caution will prevail this year. Earnest Analytics estimates that over 25 million consumers with student debt, or roughly 60%, will have $300 less per month to spend this year.
Martindale remarked, “Consumers overspent last holiday season when everything seemed back to ‘normal,’ and the prevailing attitude was to ‘just put it on a credit card.’ I don’t believe consumers will be as cavalier about it this year.”