If you’re like many Americans, the recently passed tax reform and the continuation of the current bull market may have given you the confidence to dig a little deeper into your pockets for holiday spending. Newly released sales data showed retailers’ holiday sales increased 4.9% when compared to last year. This was the best holiday sales season since 2011. While that may be good news for the retail sector that has seen several recent store closures, it’s probably not great news for the average consumer.
According to a survey by Magnify Money, holiday shoppers racked up an average of $1,054 in holiday spending debt, a 5% increase in spending when compared to the 2016 holiday season. Of those shoppers who took on additional debt, 68% said they used their credit cards, up eight percentage points from last year.
Watching loved ones open carefully wrapped and well thought-out gifts is a wonderful feeling. But now that the calendar has turned to January and consumers begin to receive their credit card statements, those great memories can quickly turn into a financial headache, especially if you only make minimum payments on your credit cards.
Assuming you’re one of the 10% of shoppers who indicated they plan to make minimum payments to pay off their debt and have holiday debt of $1,054, it would take until 2023 to pay off that amount. The thought of 5+ years of payments to pay off one holiday season’s worth of spending can be overwhelming, and when you factor the $500 or more of interest included in those payments, you may be wishing your wallet wouldn’t have been so active last month.
Financial planners will tell you the best way to handle holiday spending is to develop a spending plan before the shopping season. But, according to the survey, 64% of those who have holiday-related debt didn’t plan to incur it. A lack of financial and budgetary planning, whether it’s for holiday spending or any other types of expected and unexpected expenses, can lead to financial problems down the road.
If you’re one of those shoppers with holiday debt, the best way to get back on track is to understand your finances. If you understand how much you spent last holiday season and develop a payment plan that fits into your budget, you are more likely to plan for your holiday spending in the future and avoid adding on debt.
Here are three other ideas to help pay down your holiday debt and create a holiday spending plan for 2018:
- Many Americans will see bigger paychecks with the recent passing of the Tax Cuts & Jobs Act and lower tax rates. Instead of increasing your spending, use that money to pay down debt.
- If you received a year-end bonus or you’re anticipating a tax refund, use that money to pay down debt.
- Tally up your 2017 holiday spending and divide by 12. Then set up automatic deposits to your savings account for that amount for each month of 2018.
Get a head start on your 2018 plan and talk to your advisor to develop a financial plan today!