As more consumers struggle with credit card debt, here’s what to know heading into the holiday season

Feeling the pressure of inflation and rising interest rates over the past few months, an increasing number of consumers have been making credit card payments 30 days late or more, according to the Federal Reserve Bank of New York’s latest Quarterly Report on Household Debt and Credit.

That climbing “credit card delinquencies” rate may trend higher this holiday season. Typically, it’s at the end of the year when more consumers start to pay late.

Knowing what the words credit card delinquencies mean is important because being delinquent or late with card payments can lower your credit score. That lower score can impact the interest rate you pay on mortgages, auto and private loans, the cost of insurance premiums — and even your ability to land some jobs.   

With so many different ways to pay for purchases with credit, “knowing your words” — especially regarding your personal finances — is more important than ever as you shop for gifts for family and friends this holiday season.

Here are three terms that you should familiarize yourself with: 

If you’re paying for holiday purchases with a credit card, you should know the annual percentage rate, or APR, on it before you buy. The APR is the interest rate or cost you pay yearly to borrow money for the purchase — and card rates are now near record highs. The average APR on a credit card is more than 21%, according to Bankrate, and nearly 30% for retail store credit cards. 

“Holiday shoppers need to know that the APR on that store credit card that you may be tempted to buy is going to be crazy high,” said Matt Schulz, LendingTree chief credit analyst. A LendingTree survey of 100 cards found some retail cards can have interest rates as high as 35%. 

The best way to borrow is to pay no interest at all — and you can do that if you are able to get a “0% APR” card. This means that you’ll pay no interest for a certain period of time for the ability to borrow money to make purchases.

The best 0% APR cards will allow you to pay no interest for up to 21 months, so you may not have to pay interest charges on purchases made now until August 2025. Pay close attention to when that 0% interest period will end, because when it does the rate will spike up to the national average — or higher — and as rates continue to rise that could mean you’ll 25% in interest charges or more.  

Buy now, pay later, or plans are another popular way to finance holiday purchases that’s now offered by most major retailers as well as by app-based lenders. Affirm, Apple Pay Later, and Klarna are among the most popular BNPL apps.

In the finance industry, BNPL products are also called point-of-sale installment loans.

Here’s how the plans work: You can make purchases and pay for them over time after an upfront initial payment. BNPL plans generally don’t usually charge interest, which makes them an attractive alternative to credit cards. But they may charge a fee — of up to $15 — especially if you miss a payment. 

“The issue with those is that it can be really easy to get and that can lead to more overspending,” cautioned LendingTree’s Matt Schulz. “You only have that short window of time to pay it off as an installment loan, as opposed to with a credit card where you have a little more flexibility on the actual payments that you make.”

— Stephanie Dhue contributed to this article