The best ways to pay off and avoid the debt of Christmas past
Dec 13, 2021, 10:37 PM | Updated: Dec 14, 2021, 10:39 am
About one in five consumers are still paying off debt racked up during the 2020 holidays, says WalletHub.
SALT LAKE CITY – For many Utahns, the holidays bring all sorts of joy and cheer. It can also bring seemingly limitless spending: gifts for the kids, relatives, neighbors, coworkers – not to mention the traveling and holiday parties. It all adds up.
But don’t let that spending turn into Christmas debt that will haunt you for years to come.
Overspending, a holiday tradition
If you’re going a tad overboard this holiday, you’re not alone. Millions of Americans have found their holiday spending adds up to more they can afford.
“About four in 10 holiday shoppers are likely to take on debt this holiday season,” said Ted Rossman, senior credit analyst for CreditCards.com.
About four in ten shoppers are likely to add debt this holiday season according to research by CreditCards.com.
Rossman said this year is shaping up like most other years with people planning to splurge. At the risk of sounding like a grinch, he said people should really think about the long-term consequences.
“I always try to be careful about how I say this. I mean, I’m not saying don’t buy anything, don’t have any fun, don’t celebrate the holidays. But we do want to be mindful of the total package here,” he said.
CreditCards.com analyst Ted Rossman tells KSL’s Matt Gephardt shoppers should consider the long-term consequences of purchases they cannot afford upfront.
That total package is that credit card debt is on the rise. With the average credit card interest rate in 2021 hovering at 15.91%, according to the Federal Reserve, December’s holiday bargains end up costing a lot more for people who carry a credit card balance.
Doing the math on holiday debt
Take that $500 video game system your kid is pleading for: If you put it on a credit card and do not pay off the full balance by the next billing cycle, that $500 at 16% interest over a year will tack on another $80 to that gift’s cost. Ouch!
“I just want to be mindful from a credit card debt standpoint, that we don’t have this holiday hangover come January,” Rossman warned.
January and well beyond.
Not paying off the balance for a $500 video game system by the end of the billing cycle will rack up $80 in interest charges on your next statement.
As anyone who suffers from debt can attest, it can stay with you a lot longer than a month or two. New data shared with the KSL Investigators show that a whopping one out of five Americans is still paying off last Christmas. That’s 20% of folks being haunted by the debt of Christmas past.
Many more than that are using their plastic this year, knowing full well they will not have the scratch to pay the bill when it comes due.
“Almost half of people say that they’re not going to be able to pay their credit card bill in full by the due date, due to their holiday shopping,” said Jill Gonzalez of the personal finance website that conducted that survey, WalletHub.
How to tackle holiday debt
Gonzalez said making matters worse is that once people find themselves in debt, many attack their debt the wrong way.
“A lot of people, and I think they mean well, but they just kind of sprinkle whatever cash they have on hand across their three credit cards and just kind of evenly distribute it,” she said.
The better approach is to consider the interest rate on each card. If Card A charges you 25% interest and Card B charges 10%, pay off Card A first – it is compounding the most interest every month.
Another tactic: Call up your credit card company and ask if they can lower the interest rate. You would be surprised how often they say yes.
And maybe go look for a balance transfer credit card. Most offer 0% interest for the first six months, according to WalletHub.
But perhaps the best advice and every expert the KSL Investigators spoke to seems to agree: “Limit what you’re spending this year,” Gonzalez said.
One in five Americans is still working on paying off what they bought LAST Christmas. Coming up on @KSL5TV News at 10PM, experts weigh in on how to make sure your aren’t haunted by the debt of Christmas past. pic.twitter.com/XVqLCa9llz
— Matt Gephardt KSL (@KslMatt) December 14, 2021
Stick to that budget and maybe prioritize experiences over expensive retail debt.
“My advice would be let’s have a great holiday season,” said Rossman, “But without those giant credit card bills nagging us in the new year.”
Getting out of debt can be daunting. Here in Utah, there is a nonprofit group called the Fair Credit Foundation that specializes in coaching people out of debt.
