Did you know 25% of Americans regret their holiday spending?!
Well, today, we're talking about the dark side of HOLIDAY DEBT, why it causes so many credit issues, and what you can do about it!
With the shopping season about to begin, it's time to answer the question: Why do 25% of Americans regret their holiday spending?
And today's episode is about HOLIDAY DEBT, why it causes so many credit issues and the secrets to avoiding holiday debt!
OKAY, LET'S GET STARTED…
Every year consumer spending peaks during the holiday season, from mid-November until the end of December.
But there's a dark secret that follows that surge of holiday spending: a massive spike of HOLIDAY DEBT!
That debt doesn't just get tossed to the curb like a dried-up Christmas Tree.
In most cases, that debt will be sticking around until February or March or much, much later.
In February this year, the financial website MoneyGeek surveyed a nationally representative sample of U.S. adults in order to understand: how much Americans spent over the holidays, how they financed that spending, and how they felt about their spending when they look back at it.
The results were UNBELIEVABLE!
The average person spent around $1,100 on the holidays.
71% of Americans spent $1,000 or less
14% of Americans spent $2,000 or more.
But most shocking, even though it wasn't surprising, was that 41% of Americans financed 90% of their holiday spending using Credit Cards!
Now, I talk about my personal opinions of Credit Cards all the time. I'm not a fan of Credit Cards, and I don't use them. But they're a big part of our industry, and we have to address their impact. Good and Bad.
So, when used responsibly, Credit Cards are a convenient tool that can build a person's Credit profile, and in a pinch, they can provide financial relief.
But when used on items people don't need or can't afford, and when they aren't paid off quickly, Credit Cards can be a fast track to financial ruin.
Currently, the Federal Reserve Bank of New York estimates that the average Credit Card holder in the U.S. has $5,769 in Credit Card debt.
To make matters worse, during times of crisis, people become far more dependent on Credit Cards. The last two spikes of Credit Card debt came during the Housing Crisis and the Pandemic, and if our economy continues to slip into a Recession, we may see another spike very soon.
Now, you might think a downward economic trend would signal that consumers are going to spend less during the holidays, but it's actually the opposite!
The National Retail Federation recently predicted that the current economic downturn will not affect spending habits. In fact, Holiday sales are expected to INCREASE between 6% and 8% from last year.
The NRF President and CEO Matthew Shay even reassured his Federation of Retailers that, in the face of these economic challenges, they would still have a "positive holiday season" because "many households will supplement spending with savings and credit."
Thanks, Mr. Shay, but a "positive holiday season" for Retailers is bad for consumers if we know they're forced to draw from their savings and pile on a bunch of debt!
But we shouldn't be surprised by his statement. Retailers and Creditors encourage bad consumer behavior because they make a whole lot of money off it.
As Credit Heroes, it's our job to protect consumers from bad guys. And sometimes, we also have to protect consumers from themselves. These Holiday Debt statistics confirm what those of us in the Credit Repair Industry already know:
Americans have an addiction to overspending!
NOW, HOW DOES THIS RELATE TO US?
Long after the Holiday parties are over, Credit Heroes are the ones cleaning up the mess of Holiday Debt.
So what can you do to help?
WARN EVERYONE! Tell your family, friends, your clients, and community. Explain how important it is to manage ALL of their HOLIDAY SPENDING. To only spend what they can actually afford and not just put it all on their credit cards. Because Credit Cards are one of the most expensive ways to borrow, and studies show that the more Cards a person has, the more Holiday Spending they finance.
But the problem isn't just Credit Cards.
A LendingTree survey revealed that 36% of all Americans took on Holiday Debt. And while most consumers used Credit Cards to fund their spending, others used: Buy Now/Pay Later programs, Personal Loans, Payday/Title Loans, and even Home Equity Loans.
In other words, when people want to spend, and they're allowed to spend, they'll find a way to spend, and the holidays apply a lot of social pressure that makes people feel like they have to spend.
But, surprisingly, it's not the amount people spend or the type of financing people use that's most concerning to Credit Heroes.
The real sign that Holiday Debt is dangerous is the Length of Time it takes to pay it off!
That LendingTree study found that: 78% of consumers needed more than 1 month to pay off their Holiday Debt, 38% needed more than 3 months, 31% needed 5 months or more, and 15% didn't even list a timeframe because they were only making minimum payments.
And when people pay the minimum, they're not making a dent in the balance. People who pay the minimum are exactly who lending companies love because that's how they make their money.
People who pay the minimum are basically paying lenders rent to hold on to their debt. Then the fees kick in, and everything gets worse.
I know this because I was that guy. And my debt got bigger and bigger, and before I knew it, I owed $200,000 in credit cards, and that was a scary place to be. I dug my way out, but it took me years. And I don't want this to happen to anyone else.
But before I get too worked up, I want to be clear. I'm not saying we should stop enjoying the holidays!
I'm not Scrooge or The Grinch.
The degree that Holiday Debt impacts each of us depends on our unique financial circumstances. We're all different, unique little snowflakes.
I'm saying we all need to make less impulsive and better-informed choices about our Holiday Spending so none of us are left with these regrets!
Besides, out of the 25% of Americans who regret their Holiday Spending, about 6% of them say they regret not spending enough!
HERE'S THE THING TO REMEMBER…
The holidays are an emotional time that, unfortunately, requires clear-headed financial decision-making.
Similar to Weddings and Anniversaries, when signs of affection are tied to the amount of money people spend, scams, price gouging, predatory lending, and bad decisions are going to follow.
Nearly 1/5th of Americans, 19%, say they regret spending too much on the holidays.
But overspending on the holidays, like most financial problems, can be fixed with good information, solid planning, and discipline.
It's our job as Credit Heroes to protect our customers during the holidays, but we also have to be sympathetic. It's extremely hard to be disciplined during this time of year.
HERE'S WHY THIS IS IMPORTANT…
"Black Friday" Sales, last-minute gifts, baggage fees, and spiked Eggnog are just a few of the reasons for overspending during the holidays. Now, not all holiday spending is terrible or irresponsible. The holidays are when people feel most generous and charitable. They feast, travel, and prioritize experiences with loved ones.
I don't know about you, but I think those are damn good reasons to spend money. Those are probably the best reasons.
But the trick is, like most good things in life, to not overdo it!
Credit is dangerous because it allows people to enjoy spending money impulsively without feeling the cost right away.
But you can protect yourself from making bad holiday spending decisions.
HERE'S WHAT YOU NEED TO KNOW…
There are THREE SECRETS to avoiding Holiday Debt and Holiday Regret that work regardless of circumstances:
SECRET #1 - MAKE A HOLIDAY PLAN AND A HOLIDAY BUDGET
No one wants to "plan fun," but there are small things you can do that will save a TON of money and prevent you from taking on Holiday Debt.
If you plan ahead, you won't get caught wasting money on things you already own, last-minute shipping costs, flights home, etc.
A few basic lists that will help you build a Holiday plan:
Once you have those lists, you can start determining what you actually NEED to spend money on and where you can get creative.
But assuming money will still be spent. Once you know exactly where you NEED to spend money, you can then focus on WHEN and HOW to spend money.
SECRET #2 - USE CREDIT WISELY
The Journal of Experimental Psychology found that it's psychologically more painful for people to use Cash over a Credit Card because people feel like they're spending "money" rather than "future money."
Beyond psychology, the Consumer Financial Protection Bureau confirmed that consumers spend less when they pay with cash.
So, when it comes to avoiding Debt, cash is KING. But similar to Kings, paying for everything with cash is unrealistic in the modern world.
Most people don't carry enough cash to buy big-ticket holiday items, and Credit Cards have significant advantages over Debt Cards for things like airline tickets – when cash is not an option.
If people absolutely have to use Credit, the trick is treating it like cash.
The CFPB study suggested people are more thoughtful about their purchases and more connected to their purchases when they pay cash. They spend less and take on less debt.
So, when it comes time for people to pay, be thoughtful, and look into the benefits of each financing option: interest rates, fees, and incentives.
When you're thoughtful about how you use credit, you'll spend it like cash and get the most for your dollar.
SECRET #3 - PAY OFF HOLIDAY DEBT
Don't get caught in a Holiday Debt Trap!
Pay off balances as soon as possible!
If you pay off your Holiday Debt quickly, you won't have to deal with late payments, fees, penalties, lower Credit scores, higher interest rates, and other domino effect financial problems.
So make a Holiday Plan and a Holiday Budget.
Be thoughtful about when and how to use Credit.
And Pay off Holiday Debt as soon as possible.
If you follow these SECRET Steps, there won't be any Holiday Regrets.
I'll end by saying…
If you don't already have a Credit Repair Cloud account, check it out. It's the software that most Credit Repair businesses in America run on. Just sign up for a 30-Day Free Trial at CreditRepairCloud.com/freetrial
And if you'd like to change lives and grow your own credit repair business, check out our Credit Hero Challenge!
It's an amazing program, and we've got another challenge starting in a few days, so grab your spot right now at CreditHeroChallenge.com!
Until next time, remember…
If you give knowledge away for free, people will pay for your expertise!
Keep giving knowledge away and keep changing lives!