Tips for Better Managing Your Holiday Debt

With the holiday season upon us, consumers are often unprepared for all the additional expenses and exit the holiday season with debt - a gift that unfortunately keeps on giving. 

Consumers expect to spend an average of $1,047.83 this holiday season, a 4 percent increase from the $1,007.24 they said they would spend in 2018, said Mike Losneck, CEO of Eaton Family Credit Union, citing the annual survey by the National Retail Federation and Prosper Insights & Analytics.

Much of consumers’ holiday debt is racked up on high-interest credit cards, according to Magnify Money, averaging $1,230 in 2018. This is an increase from $1,054 in 2017 and $1,003 in 2016.

Losneck said a lack of preparation could be part of the problem. According to a 2017 survey conducted by mobile startup Varo, 74 percent of Americans said they often fail to budget properly for the holidays by forgetting to account for the full range of holiday-related expenses such as last-minute gifts, food, decorations and holiday outfits. 

“And then, there’s always peer pressure,” Losneck said. A 2018 survey by Bankrate found two in five Americans feel pressured to overspend during the holiday season, with parents and middle-income earners feeling the greatest burden.

For consumers who rack up credit card debt, it tends to linger long after the holiday season. Losneck said a Magnify Money holiday debt survey found 49 percent of holiday shoppers who responded said it would take them five months or longer to pay off this season’s credit card debt.

Losneck said “that means from the 2018 holiday season, those shoppers were still working to pay off holiday debt into May of 2019.”

For consumers planning to make minimum payments on their debt, Losneck estimated it would take more than five years to repay a debt of $1,230 on a card with an annual percentage rate of 16.5 percent assuming the cardholder made minimum payments of $30 monthly.

“That shopper’s 2018 holiday debt wouldn’t be paid in full until 2023,” Losneck said.

The Ohio Credit Union League said consumers still can enjoy the seasonal festivities and manage to avoid a lump of debt by following these spending tips:

• Look for travel deals. Book your travel early and use online tools such as Expedia or Kayak to comparison shop. Try carrying on your luggage to avoid excessive fees and avoid peak travel dates where possible.
• Make a gift list. Make an extensive list of all family members, friends, teachers and others who you need to purchase gifts to more accurately define your budget, then set a specific amount you want to spend for each category of recipients.
• Track your spending. Return to your gift list and budget after each purchase to track your spending and make sure you’re staying within your financial limits.
• Pick a payment. Plan the way you’ll pay; cash or credit. If cash, start setting aside savings for your spending now. If credit, make a repayment plan to avoid carrying unnecessary debt into next year. If you need a new source of funds for the holidays, consider a seasonal job or suspending certain luxuries for a couple of months.
• Do it yourself. Get creative and make your gifts. From pictures of the kids to holiday treats, candles and crafts, there are a lot of easy DIY options.
• Shop the deals. Pay close attention to sales ads and take advantage of big sale days such as Black Friday and Cyber Monday. Sign up for email lists of your favorite retailers, so you receive notifications of exclusive discounts.
• Share hosting responsibilities. If you’re hosting a holiday get together with family or friends, consider asking guests to each bring a dish and if sharing gifts, consider drawing names instead of buying for all.
• Start saving earlier next year. In January, open a Holiday Club Account, a specialized savings account, at a local credit union. You can set aside money from each pay check throughout the year. It’ll grow until you’re ready for it the next holiday season.