More Americans Plan to Use Less Credit Card Debt When Buying Holiday Gifts

Almost one-third of Americans (32%) plan to use less credit card debt when buying gifts this holiday season, up from 28% who planned to use less debt in 2004, according to the Cambridge Consumer Credit Index. Another 32% do not plan to use credit cards at all this holiday season, down from 38% who swore off plastic last year.

The Cambridge Consumer Credit Index also asked consumers who plan to use credit cards this holiday season whether they expect to pay off what they owe in full or if they expect to carry balances when the bills arrive in January. 55% say they expect pay off their balances in full, down by 6 points from 2004. 41% say they will carry a balance on the credit cards for more than a month, up sharply from 33% year ago. 4% plan to pay off some credit cards and carry balances on others, down by two percentage points from 2004.

“The results of the Cambridge Consumer Index wildcard question show that many consumers say they will use credit card debt less than a year ago when making holiday purchases. However, 4 in 10 consumers who will be using debt expect to be carrying balances and paying interest on those balances beyond January when the bills come in. This is an indication that those consumers are going to shop for presents knowing in advance that they don’t have the money to pay for the gifts right away,” says Jordan Goodman, spokesperson/financial analyst for the Cambridge Consumer Credit Index.

These findings are the result of monthly nationwide telephone poll of 800+ adults conducted by ICR/International Communications Research in the past week, sponsored by Cambridge Credit Counseling Corporation.

The overall Cambridge Consumer Credit Index rose by seven points in December to a record 74. The Index rose in the question on past and present expectations but remained unchanged on expected credit usage over the next six months. The “Reality Gap,” which is the difference between the amount of debt consumers say they will pay off in the next month versus the amount of debt they actually paid off a month later, fell by 4 percentage points from November to 12 points. A month ago, 72% of Americans planned to pay off debt, while a month later only 60% actually did so.

Chris Viale, President & C.E.O. of Cambridge Credit Counseling Corp. said, “It’s encouraging to see that most people surveyed intend to either use less credit compared to last year or no credit at all. However, it is concerning to me that 41% who plan on using their credit cards expect to carry their balances for a month or more. This willingness to overspend indicates two things: the pressure many of us feel to spend a lot of money for the holidays, and that these consumers have saved very little or no money since last year. They are both sides of the same problem, which is a lack of intimacy with the household finances.”

In conjunction with the Index, the Cambridge Credit Counseling Corp. is releasing its monthly survey of people who have called in for credit counseling services over the past month. Cambridge representatives ask callers for the primary reason that they found it necessary to get help with their debts now. Of the 415 people who answered, this was the order of their responses:

1. My income has been reduced from a lower salary, less overtime or layoff (32%)

2. I am frustrated with high bank rates and fees (20.5%)

3. I want to improve my ability to achieve future financial goals like buying a house or saving for retirement (16.9%)

4. I got into too much debt by overspending (10.8%)

5. Other (8.7%)

6. My lack of financial education caused me to take on too much debt (4.3%)

7. Large medical expenses forced me to take on huge debts (4.1%)

8. Recently divorced or widowed (2.7%)

For more information on the survey see http://www.cambridgeconsumerindex.com/index.asp?content=client_survey