Will Record-High Credit Card Debt Stifle Holiday Spending Habits in 2024?

With mere weeks to go until the holiday season formally arrives, consumers are already well ahead of the game in terms of gathering up gifts for everyone on their list. AP News indicated that retailers were already in full swing when it comes to getting a jump-start on the holiday spending blitz, and a recent Deloitte report suggested that consumers were also opening up their pocketbooks.

Despite total U.S. credit card debt having reached a record high of $1.14 trillion earlier this year, per the New York Fed, indicators do not necessarily suggest that American consumers will be significantly curtailing their spending for the holidays.

The Case for Increased Holiday Spending in 2024

According to Deloitte's 2024 holiday retail survey, respondents plan to spend 8% more (around $1,778) this holiday season as compared to last year. That figure is reinforced by respondent perceptions of a more positive economic outlook, the simple fact that inflation means higher prices for gifts more broadly, and that the $100K-$199K earning demographic is estimated to increase their overall spend.

Even though 28% of those recently polled by NerdWallet said they still hadn't paid off their credit card bills from last year's holiday season, the outlet predicted that, as a group, gift-givers would spend $17 billion more this year — $201 billion — versus $184 billion in 2023. The National Retail Federation (NRF) also projected holiday spending growth of between 2.5% and 3.5% in November-December 2024 versus the same time frame last year, though its broader categorization of "non-seasonally adjusted retail sales" may be responsible for a higher overall spend estimate of between $979.5 billion and $989 billion.

According to CNBC, the proliferation of buy now, pay later (BNPL) services may also help to spur increased business for retailers this time around. Adobe data projected that BNPL spending will reach an all-time one-day high on Cyber Monday this year (at $993 million) and will contribute $18.5 billion of a total $240.8 billion holiday spend for online shoppers.

Headwinds Staring Down a Booming Retail Holiday Season

Despite Deloitte projecting increased spending by U.S. consumers, all respondent demographics showed signs of tightening the purse strings on certain purchases. Those polled said they were going to skip out on self-gifting more frequently, focus their time and energy on more affordable brands and retailers, and wait for promotional sales or offers before settling on a buy.

Consumers lacking cash, and in many cases credit, could also throw a wrench in the gears as 2024 draws to a close. Bankrate survey data indicated that nearly two in five cardholders (37%) have maxed out their credit limits, which may restrict their ability to meaningfully participate in retailers' bottom lines in November and December.

"A few years of high inflation and high interest rates, and many households are struggling. Those who are most equipped to get through it are having an easier time getting credit, but it’s a different story for those with lower incomes and lower credit scores," Ted Rossman, senior credit card analyst at Bankrate, said of the findings.

Buy now, pay later debt and fees may also begin to further hamper consumers struggling with the combined forces of prior inflation and credit card debt. Howard Dvorkin, certified public accountant and chairman of Debt.com, warned of the dangers surrounding this popular payment method.

"[BNPL loans] are just another form of credit, disguised as something for free," Dvorkin told CNBC. "This is just another way for financers to put their hands in the pocket of consumers. It’s a trojan horse.”

Will piling debt upon cash- and credit-strapped consumers prove to be a burden too great to bear as stockings begin to be stuffed and presents are placed beneath the tree this year? Despite analyst expectations of a booming season for the retail sector, the answer may not be clear until well after New Year's Day.