Rosalind Evans
As the holiday season approaches, shoppers eagerly fill their carts with gifts and decorations, creating a bustling atmosphere in malls and shopping centers nationwide. Underneath the festive facade, however, lies a significant challenge for both retailers and consumers alike. Rising credit card balances, exacerbated by the Federal Reserve’s recent string of interest rate hikes, have introduced a new layer of risk for those who choose to finance their holiday cheer with plastic. “In the first quarter, the big question will be how much will delinquencies rise,” warns Aditya Bhave, senior U.S. economist for Bank of America.
Shoppers taking on debt this holiday season will grapple with more than finding the perfect gift. With credit card delinquencies on the rise and student loan payments resuming after a pandemic-related pause, consumers are shouldering an increasing debt burden. “That’s a huge tax on the capacity of those households to spend,” says Tim Quinlan, an economist for Wells Fargo, referring to the average credit card interest rates hovering around 21%. Retailers are already starting to feel the pinch, with Macy’s Chief Financial Officer and Chief Operating Officer Adrian Mitchell noting a faster-than-expected rise in credit card delinquencies and a resultant drop in revenues from their branded credit cards.
Despite these concerning trends, some remain optimistic about the American consumer’s resilience. Bhave notes that consumers have continued to spend, fueling a robust retail market, as evidenced by stronger-than-expected September retail sales. Moreover, a solid labour market has instilled confidence in the overall holiday outlook, with Bhave stating, “It’s the labour market, the labour market, the labour market. That’s by far the most important thing when it comes to consumer spending.”
However, not all shoppers are willing to take on the risks associated with credit card debt. Jolene Victoria, a 42-year-old New Yorker, plans to spend approximately $250 on gifts this holiday season, a similar amount to last year, while actively seeking ways to save money. She states, “Early this year, after seeing the effect of rising interest rates, she said she focused on paying off a small amount of debt on her credit card. You see how much interest you’re paying, and you think, ‘Oh no.’”
As we navigate this holiday season, both consumers and retailers must be mindful of the potential risks associated with rising credit card balances and interest rates. While the lure of festive decorations and the promise of joyful celebrations may be tempting, the financial hangover that could follow is a reality that should not be ignored. Ultimately, the responsibility falls on each individual to make informed decisions that align with their financial well-being, ensuring that the most beautiful time of the year doesn’t turn into a season of financial distress.
