Americans Are Going Into Debt to Pay for Christmas

As Americans gear up for the holiday season, they are increasingly relying on debt to fund their festive celebrations. The New York Fed's latest Household Debt and Credit Report revealed that credit card balances hit a record $1.29 trillion in the third quarter, with an additional $22 billion added in the final months. Delinquency rates on credit cards have worsened, but the improvement in transition rates to more serious delinquency is a matter of concern for researchers.

A KPMG survey of 2,005 consumers found that holiday spending is expected to rise by 5 percent year-over-year, with Americans planning to spend an average of $783 this season. However, KPMG notes that price pressures have not abated, with consumers increasingly turning to debit cards (73 percent) and buy-now-pay-later options (close to 25 percent) to finance their holiday purchases. The share of consumers using credit cards has dwindled to 69 percent, and cash is now used by only 68 percent.

Despite consumers being cautious about their budgets, a National Retail Federation forecast predicts a 4.2 percent increase in retail sales for November and December, reaching $1.01 trillion. This growth is attributed to consumers' continued willingness to spend, even amid elevated inflation and inflation-fueled surcharges. Retailers like VISA expect holiday sales to rise by 4.5 percent, while spending is forecast to increase by 5.6 percent to $777 per household.

However, younger shoppers are feeling the pinch more acutely, with a survey by Accredited Debt Relief revealing that 46 percent of Gen Z respondents have postponed or skipped rent or mortgage payments to fund their holiday expenses, compared to 28 percent of millennials and 14 percent of Gen X.