Credit-card use rises for holiday shopping

6% in U.S. still paying for last Christmas

12/28/2011

WASHINGTON — After several years of frugal festivities, consumers once again turned to credit for their holiday shopping.

Credit-card purchases jumped more than 7 percent in November and surged again in early December, according to First Data, which tracks consumer payments.

A survey by Consumer Reports found that shoppers planned to charge an average of $756 this holiday, up 6 percent from the previous year, although the number of people who plan to use credit has remained steady.

“If past behavior is any predictor, the closer you get to Dec. 25 the more likely you’re running into that store and buying whatever you can,” said Ed Ferrell, director of Consumer Reports’ national research center. “Plastic really starts flying more.”

On one hand, the rise of credit can be a boon for retailers and the broader economy. It has helped consumers’ spending rise more rapidly than their incomes, which in turn drives economic growth.

Experts also say the drop in the nation’s jobless rate and the bounceback in consumer confidence have made Americans less cautious about borrowing.

The National Retail Federation expects retail sales in November and December to increase 3.8 percent compared with last year, a percentage point above its original projection.

ShopperTrak, which analyzes the number of people visiting stores, forecast sales would grow 3.7 percent.

But spending growth fueled by credit card debt could come with a price.

Consumers’ heavy borrowing during the boom years helped trigger the bust and has weighed down the recovery.

Though America’s debt load has dropped significantly since the financial crisis in 2008, the recent uptick in debt has some experts questioning whether consumers are headed for a holiday hangover.

The survey by Consumer Reports found that about 6 percent of consumers, or 14 million Americans, are still paying off credit card bills from last Christmas.

Travis Pizel, 37, is still trying to wrangle down debt from more than a decade of Christmases.

The Minnesota resident used to be among the deal-hungry hordes camped outside an electronic retailer on Black Friday. One time he scored a new computer, a camcorder, and other equipment — “not because we needed it or because we had the money for it, but because it was a good deal,” he recalled.

“That was the trap we fell into,” he said.

He and his wife thought they were being responsible by paying the minimum required on their credit card bills each month, not realizing their remaining balance was skyrocketing to over $100,000.

When their lender increased their monthly minimum in 2009, Mr. Pizel realized he couldn’t afford the payment — it had ballooned to an amount larger than his mortgage.

“That should’ve been a clue right there that something was out of whack,” he said.

Mr. Pizel enrolled in debt management plan with Maryland-based CareOne, and has now paid off half of what he owes and is credit-card free.

Instead of spending as much as $600 on each of his two kids, he budgets about $100 each for the holidays.

“It hasn’t reduced our Christmas enjoyment at all,” he said.