Consumers across the country have largely kept their household finances in sound shape over the past few years. But as more retailers entice large ticket purchases with pay-later plans, economists said it’s easier for shoppers to overspend.
The National Retail Federation (NRF) predicts consumers will spend $1,048 on average this year for holiday gifts, decor and food. Average spending is expected to be up 4% from last year, according to an NRF poll.
A survey by Country Financial indicates about 40% are not budgeting their holiday spending. According to the survey, a whopping 70% of Americans are stressed about the upcoming holiday season, with most respondents in this group (32%) feeling the greatest stress around holiday finances. The survey found Santa Claus would need to leave $58,673 in an individual’s stocking for them to be totally debt-free this holiday, not including their mortgage.
“The financial pressures and additional expenses around the holidays can make it a stressful time for many Americans — especially those who are already carrying a variety of debts,” said Tim Harris, executive vice president at Country Financial. “Don’t let the holidays ruin your goals of paying down debt. Take simple steps to budget and plan ahead in advance of the season. Ask yourself what your family can realistically afford this year, create a goal and stick to it.”
The Country Financial survey also found 63% of respondents will pay for holiday purchases with cash, debit card or money from a checking account. The other 29% plan to use a credit card.
“Our survey found that the greatest holiday wish for 13% of Americans is to pay off their credit card debt, so it’s not surprising that many are wary of using their credit cards when shopping this year,” Harris said.
With fewer consumers planning to use credit cards this holiday, there is still a growing number of consumers who plan to pay for large purchases over time through various services like California-based Affirm, which offers consumers equal installments, with no upfront charges.
Walmart partnered earlier this year with Affirm to offer installment plans for larger purchases. Affirm charges between 0% and 30% interest depending on the shopper’s credit history. Affirm said it has more than 3 million active users and last year posted loan a volume of $2 billion, double that of the prior year. Retailers that use Affirm can set the installment term from a few weeks to 39 months.
Walmart, Big Lots, T.J. Maxx and Marshalls work with Affirm. Walmart said it chose to work with Affirm because it offers customers a transparent and easy payment alternative to cash and traditional credit. Customers can check eligibility through Affirm’s website. A decision is made in real time, without impacting their credit scores.
Walmart said once a customer is approved, they can select a payment term of three, six or 12 monthly installments. They are shown the amount they owe each month with interest displayed in simple dollars rather than compounded interest. There are no added fees. If the approval is obtained while the shoppers are in the store, they are given a unique barcode that can be scanned at any manned register to complete the transaction.
The Affirm installment payment option at Walmart is available on purchases ranging from $150 to $2,000. Eligible items include electronics, home and garden, automotive, furniture and sporting goods. On Walmart.com, Affirm is available for Walmart-owned brands Allswell and Hayneedle. Food, tobacco, pharmacy, firearms, personal care and money services are not eligible for Affirm. The service is also not available in Iowa, West Virginia or Puerto Rico.
“Providing multiple ways to shop and finance select items with no hidden fees is an important way we deliver on our promise to help our customers save money and live better,” said Daniel Eckert, senior vice president of Walmart Services & Digital Acceleration.
Affirm has plenty of competition in the installment finance space with companies like Afterpay, Quadpay and Klarna. The travel industry and online retailers have offered buy-on-time programs for several years. But as more brick-and-mortar retailers enter the fray, the plans have become mainstream and give consumers more ways to finance smaller, less essential items.
Auriemma Group recently studied such payment plans and found they are resonating with more consumers working to reduce credit card debt.
“This point of sale installment products have wide appeal but resonates most strongly for debit users,” the report said. “Four in 10 would consider using an installment plan for everyday purchases like groceries and household items. The option allows them to access credit in a way that provides more control, making purchases more manageable and ultimately more affordable.”
The report found 60% of debit cardholders find point-of-sale installment plans attractive, but many admit they have never been offered one. Just 28% said they have been offered one while shopping in a store, and 45% said they have seen the options at checkout while shopping online. The report said 48% of debit cardholders have enrolled in at least one of their in-store installment plans while in stores, and 41% took advantage of the offer while shopping online.
Installment plans appeal to credit card holders, according to the report, although only 17% of credit cardholders received an offer to pay for purchases in installments. 51% of those offered do enroll.
“The structure of an installment plan is very attractive to debit cardholders,” said Jaclyn Holmes, director of Auriemma Research. “And while credit cardholders have the option of paying off their card balance at their leisure, they too clearly have an appetite for something a bit more concrete.”
Holmes said borrowing via an installment plan is less intimidating than revolving on a credit card. A majority of cardholders believe installment plans are helpful in budgeting expenses, and they can alleviate stress around making larger purchases. Bigger ticket items like electronics, home appliances and furniture top the list of purchases placed on point-of-sale installment plans, but nearly one-quarter used the product to purchase clothing and 17% for a shopping cart of items.
“Whether for purchases large or small, installment plans are redefining how consumers view affordability, particularly for those without credit cards,” Holmes said. “Some cardholders find the uncertainty and responsibility of paying back money borrowed on a credit card intimidating, whereas installment plans provide a clearer path and time frame for repayment.”
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