Record-Breaking Debt Rings in the Holidays
For many Americans, the 2023 holiday season is a cause for celebration and also stress. With record-breaking credit card debt surpassing $1 trillion for the first time, it may feel like a lot of consumers are getting lumps of coal in their stockings this year.
After all, about 25% of Americans are still paying off holiday debt from 2022, according to WalletHub’s November holiday shopping survey. In fact, in Q2 2023, credit card balances saw the most significant increase among all debt types, including auto loans, student loans, and mortgages.
When you consider that the average credit card charges around 21% interest rate on overdue payments -- nearly five percentage points higher than in 2022 – minimum payments end up becoming an endless revolving door of debt for many consumers.
So, if you find yourself struggling to climb out of credit card debt this year, you are nowhere near alone. But as much as misery may love company, it’s a safe bet misery would prefer living debt-free even more. Thankfully, there are some strategies, methods and spending tips that you can leverage to help avoid getting into more debt this holiday season.
But, first things first…
How did we get here?
Given all the challenges of the last few years, this record debt is dismaying but hardly shocking. According to the Federal Reserve Bank of New York, credit card issuance has been steady over the last few years, averaging about 92 million newly-issued cards each year between 2017 and 2019. The pandemic caused a sharp contraction in new credit card issuance, but lending returned across all credit score groups in 2021.
In fact, there are currently 70 million more credit card accounts open than in 2019. Approximately 69% of Americans now possess at least one credit card. Compound this with a declining personal savings rate and more than half of adults living paycheck to paycheck in the face of inflation, we now have a perfect credit card debt storm.
So, what do you do if you have five digits (or more) in credit card debt and need to get rid of it?
- Buy now, pay later – Buy now, pay later plans (BNPL) are a popular alternative to finance holiday purchases that are now offered by most major retailers as well as by app-based lenders. Affirm, Apple Pay Later and Klarna are among the most popular BNPL apps. But, keep in mind that while BNPL plans generally don’t charge interest, they do levy late fees — of up to $15 — which can add up.
- Debt consolidation – Debt consolidation is one method to pay down your debt faster. You might use a personal loan, balance transfer credit card or even your home equity to consolidate your existing debt and pay it down more quickly. A home equity loan (HELOC) can be a good solution for homeowners paying down high-interest debt since you can use the equity you've built in your home to qualify for a lower interest rate and start eliminating your balances. Not sure if consolidation is right for you? Check out this blog to see if it makes sense given your financial situation. to see if it makes sense given your financial situation.
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