Holiday shoppers this year may have less room on their credit cards, and little enthusiasm for making that worse.
In July, 61% of U.S. consumers lived paycheck to paycheck, 2 percentage points more than a year ago, according to research from digital marketplace bank LendingClub. More consumers of all income brackets reported that situation, those researchers also found.
Credit cards have helped U.S. consumers get through a couple of years of rising prices, and buoy retail sales for several months. But that has also helped push their collective balance to a record $1.03 trillion dollars, according to the New York Federal Reserve Bank’s Q2 report on household debt.
Last year, consumers added $116 billion in new credit card debt, with $88.4 billion of that just from spending during the holiday quarter, according to a report from WalletHub. This year, Q2 ended with the second-largest increase ever for the period, at $43 billion, per that research. Much of the increase is driven by discretionary purchases, LendingClub found.
The higher interest rates of this inflation-fighting time are making it harder for consumers to pay off their cards, so more are carrying balances, according to Bankrate Senior Industry Analyst Ted Rossman. More than half told Bankrate that they expect to pay for at least some of their holiday purchases with a credit card, and 19% of them are willing to take on or add to their debt.
But many — including those still with balances left over from last year’s holiday — will likely hesitate before throwing their purchases on a card, according to Meghann Martindale, head of retail research at Madison Marquette.
Student loan payments, which will resume about when holiday shopping begins, are adding to the squeeze, she also said. About 60% of those with student debt, or more than 25 million consumers, will have $300 less per month to spend this year, according to Earnest Analytics.
“Consumers overspent last holiday season. We were still riding the high of everything being back to — quote — ‘normal,’ and the attitude was ‘hey, just put it on a credit card,’” Martindale said by phone. “I don’t believe that consumers will be as cavalier about it this year.”