Skip the Holiday Debt Hangover this Year

By Sarah Senn

Operations Manager

The holiday season is quickly approaching. Holiday lights, music and shopping are just a few of the traditions that we look forward to. For many, the holidays are a time of cheer, for reflecting over the last 365 days, and for being with family and loved ones. For others, there is a looming dread of being able to afford holiday dinners and gifts.

The average consumer spent $928.76 on Christmas gifts in 2019. 21.5% of those surveyed went into debt over Christmas, and 29.7% who went into debt hoped to pay it back with their tax returns. Many had no idea how they would get out of debt. For anyone with fair credit, they may have been charged an average credit card interest rate of 22.84% on their debt.

Only 42% of shoppers said they would be able to pay off their holiday purchases within three months; 58% said it would take them more than five months to pay off the debt. What does this mean for consumers making only the minimum payments on their credit cards? It could take more than five years to pay off the debt. A consumer paying only the minimum monthly payment of $30 on a $1,230 credit card balance would pay around $592 in interest!

Many consumers for whom access to credit cards is not a realistic option turn to payday loans. All an individual needs to obtain a payday loan is an open bank account in relatively good standing, a source of income and an ID. But at what cost? A typical payday loan carries a fee of $10 to $30 for every $100 borrowed, equating to an APR of almost 400%. These loans are typically designed to be a short-term solution paid back within 2 weeks. The CFPB found that 80% of borrowers rolled over loans within 30 days because they lacked the ability to repay the debt within the short time frame. Longer loan terms result in additional fees and interest making it very challenging for the borrower to pay the loan back. The CFPB also states that 1 in 5 payday loans goes into default.

With a little pre-planning now for this holiday season, the stress of a holiday debt hangover in 2021 can be avoided.

1. Before lists are made and shopping begins, know what you have available to spend. This is accomplished by creating or using a budget to identify what is coming in and going out to determine what you have left over.
2. Look for ways to stretch those holiday dollars. Here are a few tips:
   1. Shop early! Look for sales all year long.
   2. Take advantage of free shipping. Try purchasing items on your list from the same retailer to meet free shipping minimums.
   3. Look for early Black Friday sales. Retailers looking to provide the safest shopping experience this year are starting their sales ahead of the traditional Black Friday events.
   4. Make presents. Some of those homemade gifts can be the most sentimental and thoughtful.
3. After the holidays, look back on what you spent in 2020 (did you stay under budget?) and set up a savings account for next year’s holiday celebration. Imagine how good it will feel to know you have the money put aside to spend!

Doing your research and preparing financially ahead of the holidays can allow you to make more educated decisions and have a better plan for what is ahead so you can relax and enjoy your time with family and friends.

FinFit offers a variety of financial wellness services and resources, including tools for money management and budgeting, money-saving coupons and financial solutions that can be more affordable than the high cost of credit with other institutions. If you need a little help this holiday season, check with your employer to see if they offer FinFit.

Employers: if you don’t currently offer FinFit, what a great benefit to gift your employees this holiday season!