Post-Holiday Credit Card Bills Pile Up After Record Shopping Spree

Experts suggest strategies like the "snowball" and "avalanche" methods to manage debt as interest rates soar.

After a record-breaking holiday shopping season, many consumers are now facing the bills for their purchases. Retail sales reached a staggering $994.1 billion during the 2024 holiday season, according to the National Retail Federation. A significant portion of that spending was financed through credit. LendingTree reports that 36% of Americans took on holiday debt, averaging $1,181 per person — a 15% increase from the previous year.

"Prices are still high, and they seem to be affecting people’s budgets more than expected," said Matt Schulz, Chief Credit Analyst at LendingTree.

For many, repaying the debt will be a long-term commitment. According to LendingTree, 21% of borrowers expect to take at least five months to pay off their balances. Additionally, 20% are making only the minimum payments, which often results in interest accumulation and delays in clearing the balance.

U.S. household debt has reached new heights, totaling $17.94 trillion by the third quarter of 2024, with credit card debt alone at $1.17 trillion, according to the Federal Reserve Bank of New York. However, disposable personal income has also increased, helping to slightly improve the debt-to-income ratio, which now stands at 82%, down from 86% in 2019. Despite this, experts warn of the financial risks associated with increasing reliance on credit, including the growing use of "Buy Now, Pay Later" (BNPL) services.

BNPL services hit an all-time high this holiday season, with consumers spending $18.2 billion online using these platforms, surpassing last year's $16.6 billion. While BNPL services offer convenient payment options, the Consumer Financial Protection Bureau has raised concerns about users accumulating debt. A 2022 report revealed that many BNPL borrowers also carried high balances on other credit accounts.

“The problem with BNPL is that it’s so easy to use that people often take on multiple loans at once, pushing their finances into deeper trouble,” Schulz explained.

To manage holiday debt, financial experts recommend strategies such as the "snowball" method, which involves paying off the smallest debts first, or the "avalanche" method, where borrowers focus on clearing the debts with the highest interest rates. While the avalanche method is typically more cost-effective, both strategies can help borrowers reduce their financial burden over time.

The highest-interest debts often come from store-branded credit cards, which now have average interest rates of 30.45%, according to Bankrate. These rates are significantly higher than the average credit card interest rate of 20%, which remains near historic highs.

For those worried about missing payments or managing rising interest, experts suggest contacting credit card companies or BNPL providers like Klarna and Afterpay to negotiate lower rates or extensions. Additionally, balance transfer cards and personal loans can offer a way to consolidate debt with lower interest rates.

Ultimately, experts emphasize the importance of taking a hard look at one’s financial situation to avoid future debt issues. "Honest assessments of your finances are crucial when tackling debt. It’s important to make the tough decisions that will ensure your money is being used wisely," Schulz said.

By making strategic changes and focusing on debt repayment, consumers can manage the financial fallout from the holidays and avoid long-term financial strain.