By Jessica Dickler -
CNBC
Just when the holiday shopping season is in full swing, families' budgets are tighter than ever.
Since October, 60% of Americans have been living paycheck to paycheck, according to a recent report by the LendingClub organization.
A year ago, the number of adults who said they were in financial distress was around 56%.
“More consumers who have been comfortable with their budgets are now feeling financially challenged, which will affect how they spend this holiday shopping season,” said Anuj Nayar, LendingClub's financial health officer.
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Not only have daily expenses increased, but inflation has also caused real wages to decline.
Average real hourly earnings are down 3% from a year earlier, according to the latest report from the Bureau of Labor Statistics.
Deals for Black Friday at a store in Miami, Florida, on Nov. 21, 2022. Rebecca Blackwell / AP
A different report from Salary Finance found that two-thirds of working adults said they are in worse financial shape than last year.
Credit card balances are already rising, up 15% in the most recent quarter, the largest annual increase in 20 years.
About half of consumers surveyed have said they will buy fewer things this year because of higher prices, and more than a third have said they will use coupons or other money-saving strategies, according to a survey by the RetailMeNot organization.
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More consumers also plan to finance their purchases this year with credit cards and buy-now-pay-later loans.
And 25% of shoppers said they would opt for cheaper versions or more practical gifts, like prepaid gas cards, according to another holiday survey by TransUnion.
“People are trying to economize and make the most of what they have,” said Cecilia Seiden, TransUnion's vice president of retail business.
Christmas debt 'easy to get and hard to pay off'
Holiday shopping could come at a high cost if it means adding more debt to credit cards just as the Federal Reserve is raising interest rates to curb inflation, said Ted Rossman, a senior industry analyst at CreditCards.com.
“It's easy to get into credit card debt and hard to get out of it,” he said.
“High inflation and rising interest rates make it even harder to break free.”
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Interest charged by banks to cardholders with lines of credit is now averaging 19%, an all-time high, and those rates will continue to rise as the central bank has indicated further interest rate hikes will follow. benchmark until inflation shows clear signs of a decline.
“This makes it more likely that credit card companies will raise your interest rates and makes the money you owe more expensive over time,” explained Natalia Brown, director of client operations for National Debt Relief.
Rising inflation and interest rates mean consumers need to be particularly mindful of the loans they take out, he warned.
