Carlina Green has two credit cards, but she’s not touching either of them this holiday season.
When shopping in stores and online, she relies on her debit card instead.
“I like to spend within my means,” says Green, 24, who provides legal advice to low-income clients at a nonprofit law firm in San Francisco. “That doesn’t completely mean I’ll stick to my budget, of course, but at least I’m spending the money I have.”
If she were to do vacation and year-round shopping with a credit card, she fears that might not be true.
Green is among a larger-than-normal group of Americans who are trying to avoid getting into debt by making too many credit card purchases this holiday season. According to several surveys conducted ahead of Black Friday, more shoppers said they planned to pay by debit card rather than credit card.
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A National Retail Federation survey of more than 7,000 shoppers found that 43% of shoppers plan to use debit cards primarily to make holiday purchases, the highest share since 2013. Meanwhile, 38 % of respondents said they would primarily use credit cards, the smallest share since 2015. The remaining shoppers planned to make purchases with cash or checks.
A TD Bank survey of the holiday shopping habits of more than 1,000 Americans suggested the gap between people who primarily shop with debit cards rather than credit cards could be even further. bigger. Forty-two percent of respondents said they plan to use debit cards and 33% credit cards.
So far, that doesn’t show up in Bank of America’s spending data for November, which doesn’t separate holiday-related spending from all out-of-pocket spending. While consumers earning less than $50,000 a year primarily used debit cards last month, there was no significant difference in usage rates compared to the past two years, according to a Bank report. of America Institute released Thursday. And consumers earning more than they mainly paid for goods and services with credit cards.
The report is based on household spending data from Bank of America customers.
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When paying with a debit card, you cannot exceed what is in the bank account linked to your card. But with a credit card, it will end up costing you more in interest and fees if you don’t have the funds to pay your bill on time.
LendingTree’s chief credit analyst, Matt Schulz, suspects that many people who don’t pay with credit cards “don’t trust themselves not to overspend” and try to avoid taking on more debt. They’re probably already struggling with inflation and “the last thing they want to do is put more money on the credit card and dig their hole deeper,” he said.
The holidays are notoriously linked to rising debt levels as people succumb to the pressure to buy the perfect gifts and plan memorable family vacations. Last year, more than a third of Americans incurred almost $1,250 in debt on average for holiday shopping, according to a survey by LendingTree. The majority of debt that people have incurred came from credit cards.
It took months for Jalea Rodriguez to pay off nearly $600 in credit card debt she incurred while holiday shopping last year.
“I just slipped and slipped until I overspent,” said Rodriguez, 23, a pharmacy assistant in Harlem, New York.
This year she mainly uses a debit card to avoid last year’s mistakes. “If I don’t have the money, I’ll just find another present.”
The expected increase in debit card usage could also be seen as “a sign of confidence and stability,” that people have enough money to cover vacation purchases, LendingTree’s Schulz said.
And for consumers who pay with credit cards, utilization rates, the share of available credit a consumer is using, have not increased significantly from previous years, according to the Bank of America report. Institute.
That means “people are being careful and responsible,” said David Tinsley, senior economist at the Bank of America Institute and author of the report. That doesn’t come from relying more on debit cards than credit cards, he said, but rather from “their overall spending slowdown.”
The report shows spending growth in November rose just 0.2% year-over-year. Given inflation, spending growth is likely down from previous years, Tinsley said.
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People continue to tap into pandemic-related savings
Overwhelmed with stimulus money during the pandemic, Americans have paid off much of their credit card debt and accumulated savings. As a result, credit card balances, the money consumers owe credit card companies, fell by $120 billion to $770 billion between the first quarter of 2020 and the first quarter of 2021, the data shows. of the Federal Reserve Bank of New York.
But in the last quarter, credit card balances soared to $930 billion, a 15% increase from a year earlier and the biggest increase in 20 years. The personal savings rate, the share of after-tax income saved, fell to 2.3% in October, according to the Bureau of Economic Analysis. A year ago, it exceeded 7% and two years earlier, it was double.
The drop in savings and the rise in credit card balances came as consumers faced the biggest price increases in nearly 40 years. As the Federal Reserve continues to raise interest rates to keep inflation under control, paying off credit card debt will become increasingly expensive.
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Nonetheless, Americans had saved $1.7 trillion in pandemic stimulus money two months ago, according to the Fed. This represents almost 75% of the cumulative $2.3 trillion in household savings accumulated in 2020 through the summer of 2021 through government stimulus programs.
People who pay with debit cards are likely tapping into those savings, said Kent Belasco, director of the commercial banking program at Marquette University, where he teaches finance. “They’re holding their credit card as a fallback for the future, perhaps knowing we’re heading into tougher times.”
But at this point, it will be even more expensive to rely on credit cards and other forms of financing, as the Federal Reserve continues to raise interest rates.
That could explain why people are more cautious about going into debt now, said Belasco, who was First Midwest Bank’s chief information and operations officer.
As for Green, the law firm employee, said she primarily uses her credit cards for small items to help build her credit history, she said, and as a method of Backup payment in case a fraudulent charge is made on her debit card and she can’t use it until a replacement card arrives.
Elisabeth Buchwald is personal finance and markets correspondent for USA TODAY. You can FFollow her on Twitter @BuchElisabeth and sign up for our Daily Money newsletter here
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