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Credit Card Spending Increased Over Holidays

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In a turnaround from last year, shoppers were not afraid to pull out the plastic this holiday season. Spending on credit cards jumped 7 percent in November and was up in the first half of December, according to First Data, a company that tracks consumer payment data.

The move back to credit is part of a strategy this year by credit card companies to get people spending on high-interest plastic, and also reflects buoyed consumer confidence. While the increased spending boosts a hurting economy, it also poses risks for shoppers.

And it's not just plastic that got a seasonal boost. Self-reported spending overall was up 4.1 percent for the period between Nov. 21 and Dec. 25 over last year, according to a recent data from Gallup.com. Americans spent an average of $78 per day over the five-week period. The data is based on weekly surveys of more than 3,000 adults in the United States.

Robust spending in the weeks before Christmas led the National Retail Federation to revise its original holiday forecast for November and December. The organization said it expected sales to rise 3.8 percent over the last year's expenditures for a record $469.1 billion.

Even without the holiday bump in credit card spending, aggressive credit card promotions over the past year have nudged consumer credit card balances higher. At the end of November, American Express, Capital One and Discover Financial Services all reported higher balances by their card holders. U.S. card loans from all three issuers were up over 3 percent compared to November 2010, Dow Jones reported.

The boost in spending helps the American economy overall, as consumption makes up nearly three-quarters of GDP. Credit card companies also get a boost, as they make money both in swipe fees from cards -- typically 2 percent to 4 percent of the purchase -- along with interest on carried balances.

For consumers, however, spending on credit cards is a slippery slope. Even while balances may be relatively low, compared to their pre-recession heights, the high interest rate can make it difficult to completely pay down cards quickly. For example, it takes 10 months to eliminate an $1,800 balance with an APR of 15.19 percent, the current average rate, with a $200 monthly payment.

Already, one credit counseling organization says it is getting post-holiday interest from consumers concerned about debt. Consolidated Credit Counseling Services, a national nonprofit credit counseling organization, reported a healthy spike in incoming phone calls seeking debt advice on the Monday after Christmas.

"Traditionally we have seen bumps [in business] in mid-January until about March," said Howard Dvorkin, founder of the Florida-based counseling agency. "Last year there was no bump because spending was so far off."

However, just because card spending is up, one credit card expert cautions it's too early to say whether consumers will go into additional debt from holiday purchases. Bill Hardekopf, who runs the card comparison site LowCards.com, says many of the offers this year were targeted at customers who have a track record of responsible credit usage.

"They are great if you are using them right and paying off entire balance on time and they can make money for you," Hardekopf said. "But if you are not disciplined and don't pay it off -- or you charge more than you can afford -- then credit cards are horrible way to pay for things."

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