• Americans tend to overspend during the holiday shopping season and this year will be no different according to forecasts.
• With interest rates near an all-time high, leaning on credit cards, or even buy now, pay later, to purchase gifts will come at a high cost if there are missed or late payments.

Americans often splurge on gifts during the holidays.

This year, holiday spending between Nov. 1 and Dec. 31 is expected to increase to a record total of $979.5 billion to $989 billion, according to the National Retail Federation.

Even as credit card debt tops $1.14 trillion, holiday shoppers expect to spend, on average, $1,778, up 8% compared to last year, Deloitte's holiday retail survey found.

Meanwhile, 28% of holiday shoppers still have not paid off the gifts they purchased for their loved ones last year, according to another holiday spending report by NerdWallet. 

How shoppers pay for holiday gifts

Heading into the peak holiday shopping season, 74% of shoppers plan to use credit cards to make their purchases, NerdWallet found.

Another 28% will tap into savings to buy holiday gifts and 16% will lean on buy now, pay later services. NerdWallet polled more than 1,700 adults in September.  

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Buy now, pay later is now one of the fastest-growing categories in consumer finance and is only expected to become more popular in the months ahead, according to the most recent data from Adobe. Adobe forecasts buy now, pay later spending will peak on Cyber Monday with a new single-day record of $993 million.

However, buy now, pay later loans can be especially hard to track, making it easier for more consumers to get in over their heads, some experts have cautioned, even more than credit cards, which are simpler to account for despite sky-high interest rates.

The problem with credit cards and buy now, pay later

Credit cards are one of the most-expensive ways to borrow money. The average credit card charges more than 20% — near an all-time high.

Alternatively, the option to pay in installments can make financial sense, especially at 0%. 

Yet, buy now, pay later loans "are just another form of credit, disguised as something for free," said Howard Dvorkin, a certified public accountant and the chairman of Debt.com.

The more buy now, pay later accounts open at once, the more prone consumers become to overspending, missed or late payments and poor credit history, other research shows.

If a consumer misses a payment, there could be late fees, deferred interest or other penalties, depending on the lender. In some cases, those interest rates can be as high as 30%, rivaling the highest credit card charges. 

"This is just another way for financers to put their hands in the pocket of consumers," Dvorkin said. "It's a trojan horse."

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