Fewer Americans took on holiday debt this year, according to a new MagnifyMoney survey of more than 1,170 Americans. But with many people cash-strapped because of the pandemic, those who did take on debt borrowed more than ever.
About 3 in 10 consumers (31%) fell into the red to pay for holiday expenses this year. Those who took on debt borrowed $1,381 on average, a record high. In 2015, when the survey began, the average shopper borrowed just $986.
Many of those consumers who went into debt have precarious financial situations due to the pandemic. Half of the people surveyed who said they had been laid off or furloughed this year took on holiday debt, as did 42% who reported their salary had been cut.
"Folks aren't just taking on debt for convenience's sake or to run up rewards," Matt Schulz, chief credit analyst at LendingTree, said in a news release. "They're doing so because they don't have any choice."
Some people also took on the kinds of debt that can be expensive and tough to pay off. While 56% said they used a credit card to finance their purchases, 27% took out a personal loan, 22% employed a store card, and 18% used a title or payday loan.
Each kind of debt has dangers: Payday and title loans, for example, can have triple-digit APRs and tight repayment periods, while store credit cards tend to have higher interest rates and lower credit limits compared to standard credit cards.
Video by David Fang
Getting rid of debt is a top priority of many Americans heading into the new year, but it could be an uphill climb. Almost 90% of those MagnifyMoney surveyed said they won't be able to pay off their holiday debt within a month. And 18% said they plan on only making minimum payments on the debt.
With many people struggling in the pandemic, zeroing out holiday debt may not be your first financial priority. "If you're cash strapped, you should prioritize paying for living expenses while making minimum payments on your holiday debt," says Lou Abrams, CFP, the founder of financial start-up Fisecal.
When you're able to focus on holiday debt, here are four strategies to start turning the tide.
Video by Mariam Abdallah
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