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November 12, 2024
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.
Discussion Questions
Will U.S. consumers meet analyst expectations for a record spend this year, despite all-time-high credit card debt?
Are buy now, pay later loans a predatory form of credit, or merely the natural evolution of the modern online shopping experience?
What holiday shopping trends, both in terms of traditional brick-and-mortal sales as well as online sales, will emerge as this season’s notable success stories?
Poll
Loading …BrainTrust
Melissa Minkow
Director, Retail Strategy, CI&T
Rachelle King
Retail Industry Thought Leader
Brad Halverson
Principal, Clearbrand CX
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Credit card balances matter and high outstanding debt acts as a slight brake on growth. That said, it will not destroy growth as we’ve had high debt levels all year and consumers have still managed to spend. The same will be true of the holidays, especially as exuberance means people postpone worrying about debts until the new year. I expect holiday spending to be solid but considered and careful as consumers will search for the right products at the right price.
Consumers’ perceptions of how burdensome debt will be is influenced by individual views on the outcome of the election. The barrage of economic updates from sources reliable and otherwise created a lot of energy around prices and spending. Is it smooth sailing from here or time to hunker down and close the wallet? Depends on who you ask.
Credit card load will likely have some dampening on card spending this holiday season, but it shouldn’t grind it down enough to where we see negative comps or growth. Interest rates still need to come down for customers to reposition, refinance or more meaningfully pay down their debt.
Not to (over) state the obvious, but isn’t the debt at record high precisely because poople continue to spend? If they get cut off, then we can talk, until then …
As easily as we can make a case for curtailing spending given record high debt, some consumers can also make the case for keeping with traditions and spending their way through the holiday season.
Debt only hurts when you have to pay ot back. For many consumers, Buy Now, Pay Later is the new “Don’t Worry Be Happy.” It provides an unfortunately false sense of security in spending that will eventually catch up with the over-indulgers.
With the changing of the presidential guard upon us and potentially new norms on the horizon, consumer are looking to enjoy this holiday season with all the merriment that it beholds and that includes spending.
The holiday shopping season isn’t as easy to track as it once was. Purchases made on Amazon and other ecommerce sites are measurably vague, and of course no data is collected by Nielsen or IRI about them.
In spite of this, NerdWallet estimates Americans will spend about $17 billion more on gifts and $46 billion more on flights and hotels this holiday season. After the election, consumer confidence improved significantly, according to several reports. Quantifiable importance can also be assigned to that factor.
Holiday shoppers may be carrying lingering debt from previous seasons. American consumers who purchased holiday gifts on credit cards in 2023 paid the balance off on their first statement less than a third (31%).
I really don’t think anything will get in the way of moderate growth this holiday season. Consumers repeatedly say they’re more cost-conscious than ever, yet they continue to spend.
It’s wild to learn 28% of respondents “still hadn’t paid off their credit card bills from last year’s holiday season.” Factors affecting credit card spending during the 2024 holidays include attractive discounts, intense rivalry that includes Temu and SHEIN, and consumer optimism related to 2025 economic policy, inflation and job stability.
Spending growth may be moderated this holiday season among shoppers carrying high card balances. For the rest, I expect it will be indulgence as usual. I’d bet against a new record being set, though.
Retail payment plans (remember lay-away?) have long served as an alternative form of credit for shoppers who live paycheck to paycheck. Today’s versions are digitally enabled, but they cater to the same economic strata.
Another factor to consider when forecasting this year versus last: There are just 27 days between Thanksgiving and Christmas in 2024, versus 32 days in 2023. No wonder stores set up holiday displays the day after Halloween.
There is a clear sense of optimism this holiday season despite the relentless price increases and the sheer amount of consumer credit card debt. While traditional credit card debts are on the rise, Americans owe a record $1.17 trillion on their credit cards, according to a new report from the Federal Reserve Bank of New York. The flexible digital-first approach to buy now, pay later options offered by Affirm, Klarna, Afterpay, etc, are well positioned to provide extended payment options.
Consumers should tread carefully in the BNPL arena, as it could quickly become unmanageable and is another form of consumer debt. That said, retailers should prepare for a dynamic and competitive market environment. With some economic uncertainties impacting consumer confidence, retailers must leverage their strengths and adapt to their customers’ changing preferences and expectations.
Retailers preparing for the upcoming holiday rush have reason to be optimistic. Projections from the National Retail Federation suggest a 2.5% to 3.5% increase in retail sales for 2024, potentially totaling around $5.2 trillion to $5.3 trillion. While economic factors like inflation and wage growth will significantly shape consumer spending, the holiday season is still expected to be positive for retailers. To succeed in this period of high consumer demand, retailers should look to take on the following strategies proactively:
If the Democrats had won the Presidency I would have written ABSOLUTELY high debt would impact spending…with the economic “vibe” (sorry I could not help myself there) much more positive (in general of course) I think high debt loads will have no impact on spending. At all. Get ready for a big holiday season!
Will Record-High Credit Card Debt Stifle Holiday Spending Habits in 2024? –> absolutely not. This consumer is looking for an escape. Take stock of what US consumers have experienced in 2024: 3x the number of weather related disturbances (as compare with a 23 year average!) across more than 10 states and a prolonged election cycle that unearthed even more socio-political anxiety than at the beginning of 2024. Consumers are looking to regain a sense of control and a break. Research shows hat 66% of consumers report holiday shipping provides a temporary break from everything going on. Beyond record credit card debt and increased auto debt and weaker payment patterns, that is the figure where I place the most relevance.
U.S. consumers will still spend big this holiday season, but it’s not exactly a good sign. Many are leaning on credit cards and buy now, pay later (BNPL) services to fund purchases they likely can’t afford outright.
BNPL, in my view, can be predatory—it’s basically credit disguised as something harmless. It’s great for retailers in the short term, but this debt could haunt consumers later.
I think we’ll see major success in online sales, with mobile and BNPL pushing numbers up, but it’ll come at the expense of long-term financial health for many shoppers.