An Obstacle to Holiday Shopping: Skyrocketing Credit Card Rates

Crowds queuing in the early hours of Black Friday and jostling for great deals may be a thing of the past, but holiday savings still require a calculated plan this season.

Inflation is pushing vacation shoppers to shop strategically and buy early, but they’ll have to be careful not to slip now and pay later. The national average credit card rate is 19.14%, according to Bankrate.com.

That’s the highest rate the consumer financial services company has seen since it started tracking rates in 1985. The last time rates were close to 20% was in 1991, when the rate reached 19%.

Credit card rates are on a steep slope due to the Federal Reserve’s aggressive interest rate hikes, intended to fight inflation. The national average for credit card rates started this year at 16.30%, marking an increase of 274 basis points, according to Bankrate.

“What I think is important for consumers here is that there’s a good chance your credit card rate has moved even more than the national average,” said Ted Rossman, senior industry analyst. at Bankrate.


Don’t see the chart? Click on here.

This is not the right time to open a new card, as these high rates will come first. By law, credit card companies must lock in annual percentage rates for the first year of an account. But it’s not just the new cards that are affected. After the first year, creditors have the right to change interest rates and other card terms, provided they provide cardholders with 45 days written notice.

Remember that interest rates only apply to a balance that carries over to the next statement, so they are avoidable. However, 54% of active credit card holders had a balance in the last quarter of 2022, according to the American Bankers Association.

“That big fork in the road is whether or not you’re carrying balance,” Rossman said. “That’s kind of the key issue. If you have credit card debt, it’s not a shame for many people, but then you have to prioritize that interest rate.

Rossman advises getting a 0% balance transfer card, which offers an introductory break on interest for up to 21 months. This gives people in credit card debt some breathing room for this inflationary holiday season.

Bankrate’s holiday consumer survey found that 27% of shoppers will go into debt this season. Here are some tips to avoid this.

Discounts are already underway – take advantage of them.

Unlike last year’s holiday season, big box stores now have more supply than they can sell. This prompted October sales from Amazon, Walmart and Targetamong other major retailers.

Sure, it might seem a little early to buy presents before all the leaves have fallen, but there’s no reason to be a Grinch to save some green.

“I know some people joke, ‘Do you really want to see Christmas trees on October 1st?’, but despite some of the holiday creep jokes, I think the idea of ​​spreading your cash is a smart one,” Rossman said.

Among respondents to the Bankrate survey, 40% said inflation would change the way they shop this season.

As a result, 84% of vacation shoppers said they were taking steps to reduce the cost of their purchases.

Shoppers said they would buy fewer items than in previous years, start their holiday shopping earlier or opt for cheaper brands.

Use credit card rewards to accumulate savings

Most often, 41% of respondents said they would take advantage of as many coupons, discounts and sales as possible to save money this holiday season.

Cash back in stores, airline miles and hotel points all represent real value that can often sit unused and forgotten, Rossman said. If you’re planning on making big purchases, now might be the time to open up a rewards-based card.

Most credit cards have a baseline of hundreds or thousands of dollars that you must charge before the points start rolling in, so this option is best for those who can pay their balance in full. Otherwise, Rossman warns that you risk falling into debt before you reap the rewards.

Don’t see the chart? Click on here.

Paying attention to your balance is especially important because credit card balances have hit record highs this year, according to quarterly reports from the Federal Reserve Bank of New York.

The November report showed a 15% increase in card balances, the biggest increase in 18 years. This data includes both new purchases and debt carried over to the third quarter.

Credit cards are the most common type of debt in the United States according to the Fed.

About 73% of Americans have a credit card by age 25, and half of all American adults have at least two cards. For those under 30, their balances are now higher than they were before the pandemic.

Beware buy now, pay later

As receipts pile up, it can be tempting to opt for buy now and loan later, often offered online. Rossman warns to be careful with this approach.

Buy Now, Pay Later programs have grown in popularity over the past year. A April 2022 LendingTree Survey found that more than 43% of Americans used a buy it now, pay later service, up from 31% the previous year.

Among them, 42% said they were late with their payments. The threat of these small loans, lines of credit, is that they carry deceptively high interest rates, Rossman said.

Rossman describes buy now, pay later as the online alternative to store credit card offers at checkout. Both play into impulse buying that could get into debt, Rossman said.

“I’m just worried about some of these outlets [options], it’s so simple, you’re at checkout, you’re ready to pay, you’re ready to click buy. Are you in trouble? ” he said.

Want to know more about the economy? See all our inflation hedge here.

This story is part of MLive’s Wallet Watch series focusing on today’s economic issues. Do you have a wallet watch suggestion? Email us at a[email protected]

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