: 1 in 3 Americans just racked up more than $1,200 in holiday debt. Here are ways to get out from under it
’Tis the season to rack up a huge tab.
More than a third of American shoppers (36%) incurred holiday debt this year, and they owe $1,249 on average after putting purchases on their credit cards, taking out personal loans or using buy now, pay later financing.
That’s according to LendingTree, which surveyed more than 2,000 U.S. consumers between Dec. 14-20, 2021, for its annual holiday debt report. The results: more people took on holiday debt this year compared to 2020, when 31% were in the red heading into the new year.
There’s one silver lining: the average debt amount for 2021 is down 10% from $1,381 last season — possibly because those hurt financially by the COVID-19 pandemic might not have felt comfortable borrowing as much as they would have in the past.
People were bracing for big holiday bills, according to a previous LendingTree survey, which found about half of surveyed consumers (48%) were “dreading” the holidays due to the costs of decking the halls, buying gifts and hosting family feasts. And 41% of those surveyed expected to go into shopping debt, especially since 13% of respondents were still paying off last year’s holiday tab.
Indeed, the National Retail Federation reported that shoppers expected to spend $998 on average for the winter holidays this year — including Hanukkah, Christmas and Kwanzaa — on items such as gifts, food and decorations. This was on par with last year’s holiday spending.
LendingTree also took a look at which Americans acquired the most debt this year, as well as where they added it on.
It should come as little surprise that parents with children younger than 18 were most likely to incur holiday debt. More than half (54%) reported doing so. “The pressure on parents from kids, friends, relatives and from society in general to give until it hurts during the holidays is very real,” said Matt Schulz, LendingTree chief credit analyst, in a statement.
And 50% of millennials (defined as ages 25 to 40 in this report) said they had accrued more debt this December. Schulz suggested this could come from many millennials living paycheck to paycheck as they pay off student loans and try to save up for financial milestones, like buying a home. “Millennials aren’t college kids anymore,” he said. “Many are getting married and starting families, and those things are really expensive. When you factor in inflation, it’s an even bigger issue.”
Both millennials and parents with kids under 18 borrowed $1,462 for the holidays on average, or $213 more than the average debt incurred by respondents overall.
Credit cards remain the most popular form of holiday debt, with 62% of borrowers putting their purchases on plastic, not including store credit cards.
And Americans had been racking up credit card debt again this year even before the holidays, according to the New York Federal Reserve’s third-quarter report on household debt and credit. It found that household debt increased by $286 billion in the third quarter to $15.24 trillion overall. The biggest contributor was a jump in mortgage balances, as record-high home prices forced borrowers to take out bigger mortgages — that, in turn, also probably led to more Americans “leaning” on their credit cards to pay off other bills after their mortgages took a bigger bite out of their paychecks.
But buy now, pay later (BNPL) programs such as Afterpay APT, -3.03% — which recently agreed to be acquired by Square SQ, -1.11% — Affirm AFRM, -3.43% and Klarna have also become more and more popular. Almost 40% of those surveyed by LendingTree used BNPL to pay for their gifts and trimmings this year, which was up from 37% last year.
Roughly 60% of U.S. adults have used BNPL services, according to marketing insights agency C+R Research. And of those who use BNPL, four out of five recently told Morning Consult that they planned on using it for holiday gift-buying.
“They’re easy to get, give you a little bit of extra time to pay for something without any extra costs, are predictable and don’t leave you in the end with a lot of extra credit that could become debt in the future,” Schulz said of the BNPL appeal.
But let’s be clear: BNPL is still debt, and financial experts warn that it is possible for shoppers to get in over their heads without realizing it. So here’s some things to keep in mind before using buy now, pay later services, as well as tips for using them responsibly.
So what if your debt ballooned this holiday season, and you don’t want this balance hanging over your head six months in the New Year?
Snowball vs. avalanche method of paying down debt
Some tried-and-true tips from personal finance experts include deciding on a plan of attack to pay off that debt and keep you focused. Some strategies include the snowball method (paying off the smallest debt first and working your way up to the biggest ones), or the avalanche method (paying off the debt with the highest interest rate first, and then tackling the next highest, and so forth.)
Many experts suggest paying off cards with higher rates first in order to avoid bigger interest payments down the line, although choosing to knock off the lowest debts first can give you a psychological boost that makes your debt repayment feel more doable.
Increasing your income by moving to a higher-paying job or taking on a side hustle can also provide more money to pay down that debt faster.
You can get tips on transferring your balance to a credit card with a lower interest rate here.
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