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Consumer debt is about to skyrocket as we are gradually entering the holiday season

“It’s the most wonderful time of the year!” This song by Andy Williams has become a classic in American culture during the holiday season. While we are not yet into the actual holiday season (from Thanksgiving to New Year’s Day), fall marks the period where people embrace the spirit of holiday celebration.

The holiday season is undeniably the most wonderful time of the year, for consumers and corporations in the retail industry and the credit market. For consumers, the holiday season represents a festive time of joy and togetherness where they get to spend time with their loved ones and be grateful for a full year lived with its ups and downs. For corporations in the retail industry and the credit market, the holiday season represents the time for revenue and profit maximization.

Indeed, retail companies and credit card companies love the holiday season because this is the time when consumers overspend within a short time period. Households from all income brackets are willing to spend what’s necessary to please their loved ones, including going into further debt. This benefits credit card companies the most because they get to charge high-interest rates, especially to low- and middle-income households.

Average Debt Added Over the Holidays, 2015-2022

Source: Lending Tree Survey

According to a Lending Tree survey conducted in 2022, 35% of Americans took on holiday debt in 2022, down slightly from 36% in 2021. However, the average debt jumped to $1,549, up 24% from $1,249 in 2021. This is so far the highest the company has seen since it began tracking average debt levels in 2015. The 2021 survey indicates, however, that millennials represented the highest percentage of Americans who added holiday debt in 2021, with 50% while baby boomers represented the lowest percentage with 16%.

The 2022 survey further indicates that more people are taking five months or longer to pay off holiday debt. This is based on the buy-now-pay-later (BNPL) services, which is a type of short-term financing method that credit card and fintech companies advertise to incentivize consumers to take on more debts. Thus, more people are taking on debt without planning to do so.

BNPL services deepen the financial hole that most consumers put themselves into because they offer a convenient and flexible way to pay for goods and services. Thus, there are major issues that BNPL services represent for consumers.

First, BNPL makes consumers overspend. Indeed, BNPL can make it easy for consumers to overspend, as they can make purchases without having to pay the full amount upfront. This can lead to debt problems, especially for consumers who are already struggling financially.

Second, BNPL services come with high interest rates. Some BNPL services charge high-interest rates on late payments. This can make it difficult for consumers to get out of debt if they fall behind on their payments.

Third, there is a lack of consumer protection with BNPL services. Certainly, BNPL services are not subject to the same consumer protections as traditional credit products, such as credit cards. This means that consumers may have fewer options if they have a problem with a BNPL purchase, such as a defective product or a return that is not processed correctly.

Fourth, Some BNPL services do not clearly disclose their fees and interest rates. This can make it difficult for consumers to understand the full cost of using a BNPL service before they sign up for it.

Consumers do not have to take holiday debt to please their loved ones. They can still spend in other ways than using BNPL services. To avoid holiday debts, consumers can create a budget and track their spending, take advantage of sales and coupons, set limits on their spending, or consider homemade gifts.


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