Saturday, 26 September 2020

Americans Racked Up $1,325 in Holiday Debt in 2019 — And Most Won’t Pay It Off on Time

Americans Racked Up $1,325 in Holiday Debt in 2019 — And Most Won’t Pay It Off on Time
27 Dec
6:39
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When the holiday season ends, you take down your festive decorations, ease back into work and resume life as normal. But for many Americans who rack up debt during the most wonderful time of the year, the holidays aren’t over until the bills are paid off.

Americans with holiday debt took on $1,325 on average in 2019, according to a survey conducted by MagnifyMoney. The vast majority of respondents won’t be paying off their holiday debt by January.

Key findings

  • 44% of consumers took on debt this holiday season, and the majority (57%) didn’t plan on doing so. Fifty-two percent of Generation Xers and 50% of millennials added holiday debt, versus just 36% of baby boomers.
  • Gen Xers added the most debt — a whopping $2,076 on average. Millennials racked up $1,215, and baby boomers added $606.
  • 78% of those with holiday debt won’t be able to pay it off come January, including 15% who are only making minimum payments.
  • 58% of indebted consumers are stressed about their holiday debt. Millennials and Gen Xers report being the most stressed at 68% and 63%, respectively. Baby boomers are the least stressed, at 37%.
  • 70% of those with holiday debt owe money on their credit card, while 21% used a store-branded credit card. Twenty percent used a personal loan and 12% borrowed money from friends or family to fund their holiday spending.
  • 40% plan to consolidate debt and/or shop around for a good balance transfer interest rate, but more than half won’t even try. Of those that won’t try, 20% think it’s not necessary, and 18% don’t want to deal with another bank.
  • Those who added holiday debt said the most expensive gift they purchased was either for their child (36%) or their spouse/significant other (32%).

Holiday debt is up 8% from last year

It should come as no surprise that consumers are taking on holiday debt again, considering our survey findings from years past. Holiday debt rose 8% this year, from $1,230 in 2018 to $1,325 in 2019. Since we first conducted this survey in 2015, holiday debt has risen an incredible 34%.

For the purposes of our survey, holiday debt includes any seasonal costs, such as Christmas gift-giving, plane tickets for traveling home or groceries for Hanukkah dinner. Gift-giving (and, by extension, retail spending) is a large component of holiday debt. Industry trends of rising retail sales may contribute to the rise in holiday debt that our survey found.

Holiday retail sales grew 3.4% this year, while online sales grew 18.8%, according to Mastercard SpendingPulse™, a market intelligence service. SpendingPulse monitored sales activity from Nov. 1 to Dec. 24 across Mastercard accounts to compile its data.

Gen Xers took out the most holiday debt at $2,000+

Debt amounts were clearly split among generational lines:

  • Baby boomers: $606
  • Gen Xers: $2,076
  • Millennials: $1,215

Keep in mind that just because baby boomers only took out $606 in holiday debt this year doesn’t mean that they spent less this holiday season. It just means that they took out less debt in doing so. They could have saved throughout the year or dipped into cash or savings to pay for holiday-related expenses.

Besides taking out less debt, older generations are more likely to pay off their debts sooner than their younger counterparts. Baby boomers are most likely to pay off their debt within one month, while millennials are most likely to just pay the minimum balance on their accounts.

Across gender lines, men were heavier spenders. Men took out $1,450 in holiday debt, about $250 more than women.

78% of holiday shoppers with debt won’t pay it off by January

A large majority of respondents (78%) said that they won’t pay off their holiday debt by January. This is a daunting prospect for credit card and store card users in particular, who will accrue interest unless they pay off their purchases when the statement balance is due.

Just 22% of respondents will pay off their debt within one month.

It could take years to pay off holiday debt

For the 15% of consumers who will only make the minimum payments on their holiday purchases, it could take months or years to pay off that debt. These borrowers will also pay the most interest on their purchases in the long run.

According to MagnifyMoney’s credit card payoff calculator, it would take more than five years to pay off $1,325 making minimum monthly payments of $30 with an interest rate of 15.1%. Plus, you’d be paying more than $600 in interest by the time you’re done paying down debt, years after the holiday has ended.

We used 15.1% because that is the average interest rate across all open accounts, according to the Federal Reserve. But holiday debt could take even longer to pay off (and cost more), since 36% of survey respondents said they’re paying an interest rate of 20% or more.

Credit cards were widely used again this holiday season

American families rely on credit cards to make Christmas miracles happen. Seventy percent of respondents funded their holiday spending with credit cards, about the same as last year. Plus, 21% of those surveyed used store cards.

1 in 5 financed holiday spending with a personal loan

More people are leaning on personal loans to cushion their holiday spending. Twenty percent of respondents used personal loans this holiday season, up from 14% in 2018 and 9% in 2017. So in the span of two seasons, consumers doubled their holiday usage of personal loans.

Consumers still favor store cards, despite high APRs

The use of store cards doubled from 10% in 2018 to 21% this year, despite the fact that shoppers will see higher APRs using this type of funding than traditional credit cards.

The average store credit card APR is 25.41%, according to CompareCards, which, like MagnifyMoney, is owned by LendingTree. So consumers who don’t pay off their holiday debt by the time the statement is due risk paying much more than the value of the items they bought if they don’t pay off the store card on time.

Holiday debt is a source of stress for many

A LendingTree survey released in early December found that 61% of Americans were dreading the upcoming holidays due to spending. About the same amount of our survey’s respondents (58%) reported being stressed about their holiday debt.

Millennials and Gen Xers reported the most debt-related stress at 68% and 63%, respectively, compared with just 37% of baby boomers. It’s worth reiterating that baby boomers have the least amount of debt, at $606, perhaps contributing to lower stress levels.

Despite the fact that many spenders are stressed about their holiday debt, more than half of them won’t try to consolidate debt or shop around for a better interest rate. Many simply don’t want to bother with another bank.

Methodology

MagnifyMoney commissioned Qualtrics to conduct an online survey of 1,120 American consumers. The survey was fielded Dec. 20-23, 2019.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Erika Giovanetti

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Source: https://www.magnifymoney.com/blog/news/2019-holiday-debt-survey/

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