More Americans took on debt this holiday season than in 2020, according to a new survey by LendingTree.
From making travel plans to purchasing gifts for loved ones, more than a third of American consumers (36%) incurred holiday debt this season up from 31% in 2020. This year, borrowers owe an average of $1,249, down 10% from $1,381 last season, LendingTree found.
And while most holiday borrowers with debt put it on their credit cards (62%), nearly 40% of Americans used buy now, pay later (BNPL) financing for holiday gifts this year. This is up slightly from 37% in 2020, reported LendingTree. Interestingly, this type of financing was most common among parents with young children (64%), six-figure earners (61%) and millennials (60%).
But BNPL isn’t without its flaws. As this form of financing has become more popular across America, the concerns about accumulating debt, regulatory arbitrage, and data harvesting have caused the Consumer Financial Protection Bureau (CFPB) to probe BNPL providers Affirm, Afterpay, Klarna, PayPal, and Zip this month.
BNPL credit is a type of deferred payment option that generally allows the consumer to split a purchase into smaller installments, typically four or less, often with a down payment of 25% due at checkout. The application process is quick, involving relatively little information from the consumer, and the product often comes with no interest. Lenders have touted BNPL as a safer alternative to credit card debt, along with its ability to serve consumers with scant or subprime credit histories.
The CFPB orders seek to illuminate the range of these BNPL products and their underlying business practices.
By the end of the holiday season, Americans are on track to have $70 billion more in credit card debt according to WalletHub and balances are expected to rise even higher in 2022 to a staggering $805.7 billion according to a separate forecast by TransUnion.
This news comes as holiday retail sales grew this year, suggesting that pandemic worries did not eliminate strong consumer demand this holiday season.
Between Nov. 1 through Dec. 24, U.S. retail sales grew 8.5% year over year, according to data from Mastercard SpendingPulse, which monitors retail sales via Mastercard payments and survey-based estimates for cash and check payments. Sales grew 10.7% compared to 2019.
In store sales were up 8.1% from 2020, as shoppers returned to physical stores this year. Online sales grew 11% year over year and 61.4% compared to 2019 and made up 20.9% of total retail sales this year.