Americans racked up average $1054 over the holidays in 2017. All thanks to holiday shopping. According to the report published by MagnifyMoney, 68% of frenzied shoppers used credit cards for holiday shopping, a figure higher than 2016. 17% of shoppers used store cards, 9% of consumers took out a personal loan, and 4% borrowed a payday loan during the festive season.
How much Americans have to pay
If Americans pay $25 every month, then it will take 5 months to clear their holiday debt of $1054. Plus they will pay an extra $505 in interest, which is 50% more than the original spending. The average amount of holiday debt increased by 5% in 2016. But this is just the average. Almost 18% shoppers incurred $2000 of debt. Most of consumers didn’t plan or expect to borrow so much but the lack of proper financial planning lead to problems.
49% of consumers expect that they can pay off their debts in 3 months. 51% of consumers feel that they it will take more than 3 months to clear their holiday debts. 10% of consumers feel that they can only pay the minimum amount, which means it will take more than 5 months to eradicate their holiday debt.
Another lingering problem
Though most consumers used credit cards for holiday shopping, some used payday loans for holiday purchases. Payday loans are costlier than credit cards due to their high interest rates. Some payday loans have 500% interest rates. Can you imagine that? I know many people who have closed their bank accounts just to get rid of payday loans. Payday lenders directly debit money from consumers’ accounts every month, and they keep on doing that till the loan is completely paid off. Unfortunately, the interest is so high that most consumers are unable to pay off the amount. Hence, lenders continue to withdraw the amount.
How can Americans tackle holiday debt in 2018?
Where there is will, there is a way. Americans can get out of debt in 2018 itself. All they need to do is use a few strategies. For instance, they can refinance their credit card debt with a debt consolidation loan or a balance transfer method.
Balance transfer method is good as long as consumers pay off the full amount within the introductory period. If they can’t, then they have to pay double interest on the accrued amount. This is why many financial experts warn consumers against credit card balance transfers.
The other option is the debt consolidation loan, where consumers can replace their existing credit card debt with a single loan with low interest rate. This option is good when the interest rate is low and the loan term is short. If the loan term is long, then a consumer has to pay a big amount in the long run. It isn’t beneficial.
So what’s the viable option? If you ask me, I’ll say it’s the debt consolidation program where consumers can pay as per their affordability without any added interest or penalty. I mean, they can sleep comfortably since they have to make a low monthly payment due to reduced interest every month.
Wait! I’m not finished yet
Consumers should check their credit report diligently since that makes a direct impact on the credit score. They should find out what’s there on their credit report to avoid unpleasant surprises later.