25% of Americans still have holiday debt from last year: ‘If you’re in a hole, stop digging,’ says money expert

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Thursday, November 23rd, 2023 4:56 pm EDT

Key Points

  1. High Holiday Debt and Rising Interest Rates:
    • Around 25% of Americans are still dealing with holiday debt from the previous year, as reported by WalletHub’s November holiday shopping survey.
    • Ted Rossman, Bankrate’s senior industry analyst, advises against accumulating more debt, especially for those already carrying a balance. The rising interest rates, with the average credit card interest rate increasing from around 16% to nearly 21% since March 2020, make it more expensive to pay down credit card debt.
  2. Strategies to Avoid Credit Card Debt During the Holidays:
    • The article provides three key strategies to prevent credit card debt from escalating during the holiday season:
      1. Make a List and Stick to It: Matt Schulz, LendingTree’s chief credit analyst, suggests creating a detailed list of intended purchases to avoid overspending. Researching prices in advance can help establish a budget.
      2. Utilize Credit Card Rewards Wisely: Ted Rossman recommends leveraging accumulated credit card rewards during the holidays, such as redeeming points for cash back, travel credits, or gift cards. However, it’s cautioned not to take on more debt solely for the purpose of earning rewards.
      3. Communication with Family and Friends: Individuals with a smaller holiday budget are encouraged to communicate openly with their circle about financial constraints. Sharing personal stories and discussing gift-giving strategies, such as drawing names for one-person presents, can help manage expectations and expenses.
  3. Emphasis on Thoughtful Giving Over Spending:
    • The article concludes with a reminder that the holiday season doesn’t necessarily require significant spending. Ted Rossman emphasizes that the thought behind a gift is what truly matters, suggesting that one’s presence can be the most meaningful present. This highlights the importance of redefining the spirit of giving beyond monetary value and encouraging thoughtful gestures.

As the holiday season approaches, approximately 25% of Americans are still grappling with holiday debt from the previous year, warns WalletHub’s November holiday shopping survey. The rising trend of accumulating debt during the festive season is exacerbated by the current economic climate, with higher interest rates making it more challenging for individuals to pay off existing credit card balances. Bankrate reports that the average credit card interest rate has surged from approximately 16% to nearly 21% since the Federal Reserve initiated interest rate hikes in March 2020 to combat inflation.

The consequence of this surge in interest rates is that it becomes both costlier and more time-consuming to reduce credit card debt. Even a modest $1,000 balance, stemming from the previous year’s holiday spending, could keep someone in debt for 40 months and accrue $390 in interest if only minimum payments are made at the current average rate of 20.72%, warns Ted Rossman, Bankrate’s senior industry analyst.

To avoid exacerbating their financial strain during the holiday season, individuals are advised to take proactive steps. Here are three key strategies:

  1. Make a List and Stick to It: Creating a detailed list of intended purchases can act as a practical tool to prevent overspending and accumulating additional debt. Matt Schulz, LendingTree’s chief credit analyst, suggests researching prices beforehand to establish a budget and resist the temptation of impulse buying.
  2. Utilize Credit Card Rewards Wisely: For those who have accumulated credit card rewards, the holiday season offers an opportune time to leverage them. Rewards can be redeemed for cash back, travel credits, or gift cards, helping to alleviate shopping expenses. However, caution is advised against accumulating more debt solely for the purpose of earning rewards, as interest charges could offset any potential savings.
  3. Communicate and Collaborate with Loved Ones: If faced with a smaller holiday budget, individuals are encouraged to communicate openly with family and friends about their financial constraints. Sharing personal stories and seeking understanding can alleviate the pressure to overspend. Additionally, collaborative gift-giving strategies, such as drawing names from a hat and buying presents for one person instead of an entire group, can help manage expectations and expenses.

Ultimately, the article emphasizes that the spirit of giving during the holiday season doesn’t always require significant financial expenditure. Encouragingly, the sentiment conveyed is that thoughtful gestures and shared experiences can be equally meaningful, emphasizing the importance of the thought behind the gift rather than its monetary value.

For the full original article on CNBC, please click here: https://www.cnbc.com/2023/11/23/wallethub-25percent-of-americans-still-have-holiday-debt-from-last-year.html

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