Friday, May 27 2022

Shoppers are reverting to bad habits with a rise in unnecessary spending, succumbing to the urge of in-person impulse purchases, according to a new survey.  (iStock)

Three years into the COVID-19 pandemic, consumers have begun to resume their pre-pandemic spending habits, according to a new survey from TD Bank. When coupled with soaring inflation and rising interest rates, overspending has the potential to push Americans further into high-interest credit card debt.

Compared with last year, cardholders are now spending more money on dining out at restaurants and purchasing tickets at entertainment venues. TD Bank attributes “pent-up demand” from pandemic-era lifestyle restrictions to the rise in discretionary spending.

“A variety of factors are hitting household budgets, so it’s more important than ever for consumers to be vigilant about tracking their spending and using credit responsibly,” said Paramita Pal, Head of U.S. Bankcard at TD Bank. 

The survey’s findings are in line with recent data from the Federal Reserve Bank of New York, which found that credit card debt climbed at a record-fast pace in the fourth quarter of 2021. This suggests that Americans are becoming increasingly reliant on high-interest credit cards to keep up with overspending behavior.

Keep reading to learn more about TD Bank’s Consumer Spending Index, as well as how to combat overspending by consolidating debt and utilizing credit card rewards. You can visit Credible to browse a range of financial products, from debt consolidation loans to cash-back credit cards.

ENROLLING IN A HIGH-YIELD SAVINGS ACCOUNT: A STEP-BY-STEP GUIDE

Higher spending is fueled by record price inflation

More than half (54%) of consumers surveyed by TD Bank admitted that shopping is the primary reason why they overspend. The data also suggests that shoppers are slowly transitioning back from online shopping to brick-and-mortar retailers, with 29% of consumers attributing their overspending to in-person shopping.

Grocery shopping was the top spending category among survey respondents, with inflation driving up the price of food at home 8.6% annually in February, according to the Consumer Price Index (CPI). Pal said that with the rising cost of routine expenses, it’s “more important than ever” for shoppers to be vigilant about their credit usage. 

“Nearly a quarter of rewards cardholders surveyed said they have let their rewards expire, primarily because they forgot about them,” Pal said. “Smart spenders take advantage of card programs that make redeeming cash or points easy, and don’t have expiration dates for rewards.”

TD Bank estimates that consumers could earn about $77 annually on food spending if they used a rewards credit card that offers 2% cash back on groceries. If you’re considering opening a rewards credit card to earn cash back on your monthly expenses, you can visit Credible to compare offers across multiple credit card issuers at once. 

MOST AMERICANS HAVE AN EMERGENCY FUND, BUT 55% HAVEN’T MET SAVINGS GOALS

Recent rate hikes could make credit card spending more expensive

In March, the Federal Reserve implemented the first of several planned rate hikes for 2022 to offset surging inflation. Consumer prices rose 8.5% annually in March, CPI data shows, which is well above the Fed’s 2% target. But interest rate hikes can add to the cost of borrowing on a number of financial products, including credit cards.

“While rising interest rates have gotten a lot of attention, it’s important that consumers understand the actual impact to their credit card bill,” Pal said. 

A cardholder who just makes the minimum payment on a $5,000 balance would only see a minimal change to their monthly bill if their target rate rose by 25 basis points. But making the minimum monthly payments on your credit cards is an expensive way to get out of debt.

HOW TO GROW YOUR RETIREMENT SAVINGS WITH MINIMAL RISK

“That said, we recommend consumers pay off their balance in full each month to avoid interest charges and any negative impacts to their credit score,” Pal added.

If you’re just paying the minimum balance owed on your credit card balances, you might consider consolidating into a fixed-rate personal loan. Credit card consolidation has the potential to save some borrowers thousands of dollars in interest charges over time, all while their debt is repaid in predictable monthly installments.

You can visit Credible to compare rates on credit card consolidation loans for free without impacting your credit score.

DEBT COLLECTORS CAN NOW CONTACT YOU THROUGH TEXT, EMAIL AND SOCIAL MEDIA

Shoppers expect to use buy now, pay later — but there are risks

Buy now, pay later financing (BNPL) allows consumers to break up large purchases into smaller installments at checkout. While some BNPL providers offer zero-interest payment plans, some charge high interest rates and steep late fees. Plus, BNPL may drive the temptation to overspend on impulse buys.

Nearly a third (31%) of survey respondents have used BNPL, including 45% of millennials. The vast majority (81%) of BNPL users anticipate they will use this financing method again in the next 12 months. 

TD Bank spokesperson Mike Rittler said that BNPL “can be a useful tool for making big purchases more accessible” by allowing consumers to spread payments over a longer period of time.

“But like any form of borrowing, it’s important that consumers fully understand the repayment terms and schedules, so they avoid building up debt, paying unnecessary interest and spending beyond their budget,” Rittler said. 

Separate data suggests that some shoppers may already be feeling the negative impacts of BNPL plans. A recent survey found that 30% of BNPL users have struggled to make their payments, with many skipping essential bills like rent, utilities and child care to avoid defaulting. 

If you’re unable to juggle your BNPL obligations, you might consider consolidating multiple debts into a single monthly payment with a personal loan. You can browse current personal loan rates in the table below, and visit Credible to learn more about debt consolidation.

MOTIVATING BORROWERS TO RESUME STUDENT LOAN PAYMENTS IN MAY WILL BE A CHALLENGE, OFFICIALS SAY

Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

Previous

As Truist Buys Fintech Without CRA Review FDIC Unaware of Merger Review

Next

Energy productivity and efficiency: Australia's forgotten fuels

Check Also