NEW YORK, Sept 25 (Reuters) - U.S. shoppers are expected

to spend a record $18.5 billion using third-party buy now, pay

later services for holiday purchases in the last quarter of the

year, according to projections by data firm Adobe Analytics

released on Wednesday.

With many Americans recently carrying more debt, spending on

buy now, pay later services is set to increase by 11.4% over the

holiday season a year ago, Adobe said.

Buy now, pay later services let shoppers expand their

purchasing power by paying for merchandise in monthly

installments spread out over as many as 36 months; however, the

most common payments are four-installment plans.

The expected jump in spending using buy now, pay later

exceeds the projected 8.4% increase in overall spending in the

upcoming holiday shopping period, which could reach about $240.8

billion, according to Adobe Analytics. Its forecast applies to

the period between Nov. 1 and Dec. 31.

That means that firms such as Klarna, Afterpay and Affirm

are set to take market share away from debit cards and

other forms of payment on purchases of electronics and beauty

products for the holidays, a time when many shoppers increase

their debt purchasing gifts. Yet some shoppers use credit cards

to cover the installment payments due with buy now, pay later

services, which consumer watchdogs say could worsen their debt.

Shoppers using credit cards to make BNPL purchases risk

putting themselves in a cycle of debt that is difficult to

escape, said Delicia Hand, senior director of the digital

marketplace at Consumer Reports.

"If the credit card balance isn't paid in full each month,

they will incur interest charges for the buy now, pay later

purchases on top of any potential BNPL fees," Hand said.

U.S. lenders' net charge-off rates for credit cards, or the

amount banks did not expect to collect on the loans, rose to

4.82% in the second quarter, according to data from the Federal

Deposit Insurance Corporation. That was the highest since 2011.

The New York Fed's monthly Survey of Consumer Expectations,

which among other things asks consumers to estimate the

probability of becoming delinquent on a loan in the next three

months, was 13.6% in August, the highest since a short-lived

spike at the onset of the COVID-19 pandemic. The figure was

19.5% for those with annual incomes under $50,000.

Nearly 10% of BNPL purchases are made using credit cards and

automated clearing house transactions, according to the

Financial Technology Association, which has Zip and Klarna as

members. The FTA said that its members report less than 2%

delinquency rates for BNPL purchases.

Affirm expects shoppers to hunt for electronics including

cellphones, laptops and headphones this holiday season as they

look to replace personal gadgets purchased during the height of

the pandemic. The company said beauty will also be a top

category for BNPL shoppers purchasing gifts.

Affirm allows users to make Pay in 4 purchases and down

payments with credit cards, but it does not accept credit

payments on most of its loans, according to its website. Affirm

also powers Shopify's ( SHOP ) BNPL service Shop Pay, which allows credit

card transactions on its pay-in-4 product.

Credit card payments make up a "single digit percentage" of

the overall payments Affirm collects, according to a company

spokesperson.

"In general, we don't think that a credit repayment for

credit is a good thing," Affirm Chief Operating Officer and

Chief Financial Officer Michael Linford said.

Afterpay accepts payments with credit and debit cards from

Mastercard ( MA ) and Visa, according to the company's website. It does

not allow shoppers to use cards issued by other BNPL providers

to make purchases.

Klarna accepts debit and credit cards from Visa ,

Discover, Maestro and Mastercard ( MA ); however,

shoppers cannot make payment for purchases made with the Klarna

card using credit cards.

In May, the U.S. CFPB issued an interpretive rule applying

new requirements for BNPL lenders. The rule requires BNPL

companies to investigate consumer disputes, refund products that

have been returned and provide periodic billing statements. The

companies are not required to assess a consumer's ability to

repay a loan.

American Express ( AXP ) lets its users pay BNPL

installments with a limited number of BNPL providers, a company

spokesperson said.

It also lets its credit card members use its BNPL service

Plan It, which is connected to American Express' ( AXP ) physical credit

cards.