Holiday shoppers push credit limits, raising personal debt to a six-year high

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Millennials and young parents may be pushing their luck when it comes to finances

While holiday spending showed a modest increase this year, the people doing the spending were racking up a serious amount of debt. 

According to a December 2020 MagnifyMoney survey, fewer Americans piled up holiday debt than in pandemic-free 2019, but those who used a credit card or took out a loan did it to the tune of $1,381 on average. That’s an increase of nearly $400, or 40 percent, since MagnifyMoney first started conducting its survey in 2015.

Pushing credit as far as possible

The consumer market was seemingly undeterred by COVID-19 or mounting unemployment rates. While it wasn’t exactly spend-at-all-costs, shoppers inched closer in that direction. Here are some of MagnifyMoney’s findings that show just how far consumers went into debt over the 2020 holiday:

The credit card bill can wait. As might be expected, credit cards were the most popular way to pay for holiday purchases among those who took the debt route. Fifty-six percent of the borrowers surveyed said they flexed the plastic this holiday season, but almost all of those who took on holiday debt (89 percent) said they’re not likely to pay the total completely off on their first month’s bill, putting them into the precarious position of taking on hefty interest charges.

“Still, most consumers will likely not take advantage of debt payoff strategies like debt consolidation or balance transfers,” commented Erika Giovanetti, the debt and personal loans writer for LendingTree. “Less than two in five (38 percent) consumers with holiday debt will try to consolidate their debt or shop around for a good balance transfer rate. For those who will not, the most common reason was not wanting to deal with another bank (20 percent).”

Personal loans continue their rise. The number of Americans with personal loans has increased steadily in recent years from 15 million to 20+ million, according to TransUnion, but the number of people turning to personal loans to finance holiday purchases is also on the rise. More than one in four of those who took on holiday debt this year (27 percent) said that debt came from a personal loan, up from one in five (20 percent) a year ago. 

Younger consumers dancing on the edge

The researchers conducting the survey said their findings also point to a troubling trend of buying now and paying later among younger consumers. 

“Point-of-sale financing companies like Affirm and Quadpay are popular among consumers. Nearly four in 10 (37 percent) of all Americans surveyed used ‘buy now, pay later’ financing for at least one holiday purchase this year,” Giovanetti said, pegging millennials and parents of young children as the demographics most likely to utilize this type of financing.

Gionvaetti’s cohort, Matt Schulz, chief credit analyst at LendingTree, says that point-of-sale found its groove in 2020 and is likely here to stay. “People like it because the payments are typically predictable and easier to understand than credit card payments, and there’s no risk of running up more debt after the loan is paid off,” he said.

While it’s probably not something they’d teach in Economics 101, the survey laid bare that half of those laid off or furloughed due to the pandemic in the millennials/young parents group also took on holiday debt -- most likely to try and bring something positive to 2020.

“The pandemic has wrecked so many things for so many people, canceling birthday parties, vacations, family get-togethers and more,” said Schulz. “Now, many people are likely trying to overdo it a bit for Christmas to make up for a crummy year. It’s easy to understand, but that spending can really clobber your budget.”

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