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A Debit or Debt Holiday

Inflation is high and interest rates keep getting higher. Consumers are confronting the highest price increases in nearly 40 years, credit card balances had the largest increase in 20 years in the most recent quarter, and personal savings dropped to 2.3% in October; a year ago it was about 7% and two years prior it was at about 14%. In this scenario, you would think consumer spending would be at an all time low, but as we look into data from the Federal Reserve Bank in New York, we can see that Americans paid off much of their credit card debt in the beginning of 2020 with the stimulus money they received during the pandemic and built up some savings. Credit card balances dropped by $120 Billion from the the first quarter of 2020 to the first quarter of 2021.

What a difference a year makes… Credit card balances shot up 15% from a year earlier, interest rates continue to rise, and inflation is just now showing signs of a slow down. A new survey by the National Retail Federation of over 7,000 shoppers found that 43% plan to primarily use debit cards to make Holiday Purchases, the largest since 2013. This shows that consumers are feeling the effects of interest rate increases. Consumers are struggling with inflation and the last thing they want to do is put more money on credit cards, but the Holidays are notoriously linked to rising debt levels, so we will have to keep an eye on reports after the Holidays.

As always we will keep you informed on industry news and more. However you decide to make your purchases this year, using credit or debit cards, we want to wish you a Merry Christmas and a happy New Year!

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