“It’s the most wonderful time of the year!” is a common phrase that sets the tone for the holiday season. With all the lights, decorations, and holiday cheer, it’s not unusual to get swept up into the momentum. Often seen as the season of giving, sometimes our hearts are far larger than our wallets which leads to holiday debt; something many don't think about until after the holidays are over. According to CNBC Americans racked up more than $1000 of credit card debt at the end of 2018 and if you only make the minimum payments it could take more than five years to pay it off.  You can check out the average cost of an American Christmas HERE, in a piece by Investopedia.

Although the emotional and financial impact of the Great Recession has many nervous about the next market downturn, it seems to have had very little impact on debt management. Americans recently broke a record with over $1 trillion in credit card debt according to data from the Federal Reserve, this is the highest level since the Great Recession.

What are the reasons Americans seem to lose restraint regarding the accumulation of debt? A recent holiday poll conducted by creditcards.com reflected that 51% find that the holidays are a valid reason to increase their debt, with men being more willing to add to their debt than women (50% vs 41%). The most common motivation behind it all seems to be making friends or family members happy (46%) and coming in at a close second was making themselves happy (42%). There was a tie for the third reason for digging themselves further into debt with 38% of people stating they wanted to please their partner and the same percentage wanting to please their children. This can be tough to understand, considering almost a third (28%) of shoppers in 2018 kicked off their holiday spending still paying off debt from 2017 holiday season.

So now what? CNBC estimated that consumers this year would spend 75% more than last year, bringing the average to approximately $1,600 on gifts. The following chart from news.gallup.com traces consumer spending plans each October for the holiday season.

It’s our hope that you were able to keep your spending reasonable this year, but   here’s a few tips to keep yourself from drowning in holiday debt in the future.

  1. Did you set a budget? Benjamin Franklin said, “If you fail to plan, you are planning to fail.”  This is especially true when it comes to holiday shopping, it is critical that you set a budget that is reasonable and stick with it. This means tracking your spending and cutting back on the unnecessary splurges. It’s not the price that shows that you care, it’s the care that you put into the gift. Challenge yourself to get gifts that are more thoughtful and personalized opposed to expensive. Check Pinterest for inexpensive gift ideas.
  2. Did you set up a repayment plan? Once the holiday season has passed, pay more than the minimum due and stop using your credit card. Forbes recommends that you pay two or three times the minimum monthly payment and have a goal to pay your holiday debt off in three months or less.
  3. Have you thought about picking up a short-term side job? According to creditcards.com survey 18% planned on getting a “side hustle” to pay down their holiday debt. Consider taking a job that’s flexible where you can make your own hours such as driving for Uber, Door dash, Grub hub, or Lyft.
  4. Have you considered doing a balance transfer? If you noticed a credit card offer that gives you 0% interest on balance transfers consider taking it. If you can pay it off before the introductory offers expire than you’ve saved yourself a nice amount of interest. If you are unable to pay the balance off before the offer expires be sure to know what the interest rate is after the introductory offer expires. Keep in mind that many cards may also charge 3 to 5% on balance transfers, in case you weren’t aware.
  5. Lastly, have you considered the “snowball or avalanche” method to paying off your debt? The Avalanche method ranks your debts in order by the interest rates from highest to lowest. You then focus on paying the debt down with the highest interest rate first so that you are quickly saving yourself money. The Snowball method focuses on the smallest debts first and once you pay the smaller balance off you take that payment and apply it to the next smallest debt. That way you build momentum in paying your debt off which can also be added motivation.

We understand that in the spirit of giving you can easily get carried away which is why it is important to set boundaries for your holiday spending. However, if you went a little overboard on gifting, creating a plan can help put you in the right financial frame of mind. This is important because it can really jump start your New Year’s resolutions. Remember the joy of the holidays is in your heart not in your wallet, so don’t allow your focus to shift away from why it truly is “the most wonderful time of the year” for so many.

For more information on this topic contact Danielle Washington. 

 

References

www.creditcards.com, Poll: 61 percent with credit card debt are willing to get in deeper for the holidays, https://www.creditcards.com/credit-card-news/holiday-debt-poll/, Segal, Barri,. 4th November 2019.
www.cnbc.com, If you’re still dealing with holiday debt, there’s no need to be Scrooge, Grant, Kelli B.,https://www.cnbc.com/2018/11/19/how-to-deal-with-a-holiday-debt-hangover.html20 November 2018.
www.resolve.com, 6 ways to dig yourself out of holiday debt, https://www.helloresolve.com/debt-management/6-ways-to-dig-yourself-out-of-holiday-debt/, Thomas, Jennifer, 21st November 2019.
 
www.cnbc.com, Holiday debt could take years to pay off, study concludes, https://www.cnbc.com/2019/01/08/holiday-debt-could-take-years-to-pay-off-report.html., Dickler, Jessica, 8th January 2019