These invoices are coming in after a season of record-breaking holiday spending.
According to the National Retail Federation, retail sales for the most recent Christmas season, which spanned from November 1 to December 31, reached a record $994.1 billion. And borrowing accounted for a sizable portion of that expenditure.LendingTree reports that 36% of Americans accrued holiday debt in 2024, with each consumer spending an average of $1,181 during the season. That is less than the $1,549 average for 2022 but around 15% higher than the $1,028 average from the previous year.
According to Matt Schulz, chief credit analyst at LendingTree, prices are still quite high and may be having a greater impact on people’s finances, holiday shopping, and other types of spending than individuals may have anticipated.
This holiday season, many people who ended up in debt stated that it would take them a long time to pay it off.According to LendingTree, 21% of borrowers anticipate paying off their debt within five months, and another 20% claim they are simply making minimal payments. This is a surefire way to accrue interest charges and significantly prolong the time it takes to pay off a debt.
The Federal Reserve Bank of New York reports that as of the third quarter of 2024, household debt in the United States has reached a record $17.94 trillion. Consumers owned a record $1.17 trillion in credit card debt, according to the report.
However, many people’s salaries are also rising along with their debt. In November, researchers from the New York Fed reported that Americans’ disposable personal income had increased to $21.8 trillion. Due to the increase in average salaries, consumers’ debt-to-income ratio has decreased from 86% in 2019 to 82%. Additionally, in a different survey, the credit rating company TransUnion discovered that the growth in delinquencies has moderated, indicating that borrowing has been somewhat easier for some consumers.
Leaning on credit, however, carries a number of concerns, not only from conventional cards.For years, buy now, pay later installment loans have been more and more popular, particularly during the winter shopping season. This past holiday season saw the services reach an all-time high. According to Adobe Analytics, between November 1 and December 31, people spent $18.2 billion online with BNPL services, which is more than the $16.6 billion and $14.5 billion spent in 2023 and 2022, respectively.
BNPL customers frequently accumulate debt, according to new statistics provided this month by the Consumer Financial Protection Bureau. According to the government, BNPL consumers were more likely to have large amounts on other credit accounts, and the majority of users in 2022 had numerous installment loans active concurrently. The results confirm long-standing indications that BNPL services are drawing in borrowers in precarious financial situations.
According to Schulz, the issue with purchase now, pay later is that because it’s so simple to obtain, individuals often wind up buying multiple of them at once, hoarding them, and getting into some sort of debt.
How to tackle your holiday debt
A number of debt repayment solutions are suggested by financial professionals.
There are two approaches: the avalanche method, which focuses on balances with the highest interest rates first, and the snowball method, which pays off the smallest debts first before working up to the larger ones. The avalanche strategy, according to experts, may usually save customers the most money by lowering the total amount of interest they must pay. Over time, these strategies can lessen the negative financial effects of having debt.
Retailers’ credit cards have the highest interest rates. In September, Bankrate issued a warning that rates on these so-called retail cards had reached a record high, averaging 30.45%. The average credit card interest rate, which is currently 20% lower than it was last summer but still close to record highs, is far higher than that.
If borrowers are worried about skipping a payment or not having enough money to pay, they can phone their credit card company and request a rate reduction. Additionally, some payment due dates are extended by BNPL suppliers like Klarna and Afterpay. Financial experts advise paying the full amount owed, not just the minimum, regardless of the type of credit product. That could entail a strict spending plan to prevent short-term overspending and concentrate on reducing outstanding balances.
Other choices include cards that allow consumers to transfer their balances from a high-interest card to one that initially has 0% interest. Personal loans, which usually have a fixed interest rate and a monthly payment amount, can also be beneficial since they allow consumers to consolidate their debt into one location.
In the end, financial experts advise debtors to determine the reasons behind their debt and make adjustments to prevent future financial difficulties.
According to Schulz, having a current, accurate, and truthful evaluation of your financial status is crucial while attempting to reduce Christmas debt or any other type of debt. This gives you the opportunity to make the difficult choices you must in order to prioritize allocating any incoming funds to the appropriate uses.