As Scrooge might say, ‘tis the season to pay—and for exorbitant holiday debt. As it is, consumer debt is at an all-time high exceeding $4 trillion and it’s no wonder it’s worse this holiday. Let’s take a look at the stats:
- The average credit card interest rate sits at about 17.27%, just a few points below the summer’s record-breaking high.
- The average person in a recent Country Financial survey says they would need approximately $58,673 to be debt-free of all their cumulative debts this season.
- Of those debtors who already carry a credit card balance, 61% are willing to add to their debt this season.
- More than half (52%) of Millennials surveyed are willing to add to their debt to shop for holiday presents.
Though not surprising or anything new, 70% of adults are stressed about this year’s holidays, mostly because of money, payments, and debt. Yet, despite so much consumer debt, people are still willing to continue to charge their credit cards for holiday gifts. This is one of the most expensive ways to borrow money, however, and can lead to more debt very quickly.
Holiday debt and credit card spending
For example, according to an Experion survey on holiday spending for 2019, consumers will spend 75% more on gifts this year than last. In 2018, they planned on spending $949 for holiday gifts and this year, it’s more like $1,649. But according to Ted Rossman, from CreditCards.com, if shoppers spend $1,500 and only made their minimum payments, it would take over eight years to pay off—and the accumulated interest would be $1,217 at our current interest rates.
That is a huge price to pay in interest alone. At that point, we have to ask: is it worth it? Is there a better, more responsible way to pay for holiday gifts for our loved ones?
Spending your hard-earned savings or succumbing to debt
According to a recent NYTimes’ article, Merkel Landis from the Carlisle Bank of Pennsylvania came up with the idea of the Christmas Club savings account back in the 1920s. This became popular before middle-class consumers had easy access to credit cards (and the debt that often comes with them). The whole point was to save money (and perhaps even accumulate interest) leading up to Christmas shopping. What a concept: spend what you have.
However (and to be fair), even the most debt-free savvy spenders among us have since replaced their holiday savings accounts with various types of credit cards. This could be partly due to online shopping. For example, 53% of all holiday shopping this year is expected to be done digitally. This kind of shopping really only leaves consumers with credit cards as a way to pay.
As well, some of these credit cards earn people rewards, which could be another reason for the shift away from savings toward credit. The more they buy, the more they earn. But, as NYTimes so aptly puts it: “buying more stuff than you typically do increases your risk of credit card debt.” Consumers are thus forced to succumb to record-high-interest rates, everlasting credit card debt, and spending beyond their means.
Save up and spend online this holiday—without the debt
Thankfully, the digitization of payments is changing all of that.
Consumers (and merchants, for that matter) finally have another online payment option. VoPay, as an example, is a financial technology (fintech) company that digitizes direct payments. Consumers can once again tap into their hard-earned “Christmas Club” savings accounts to pay for their holiday shopping online. They can rid themselves of crippling credit card debt and the stress that comes with the holidays but isn’t necessary anymore. They can once again spend the money that they have—and enter 2020 debt-free with a little bit of planning and savings.