According to a survey by MagnifyMoney.com, half of American shoppers borrowed between $1,000 and $5,000 on holiday gifts (and 64% of borrowers did NOT plan on going into debt for gifts). While 60% claimed that they plan to pay their debt off within 5 months, if a borrower paid the minimum on a credit card balance of $1,000, it would take 6 years to pay it off! To add further financial damage, half of these borrowers are paying an interest rate over 10%.
These are sad statistics and point to a lack of financial literacy. The holidays don’t’ randomly show up on your calendar! Yet, these borrowers failed to save money in anticipation of an expected expense. Since they did not save money, they now have to live further below their means to pay it off, plus afford the interest expense.
The better way to go about buying holiday gifts is to plan for them:
- Whatever you spent on gifts in 2017, divide that amount by 12 and set it aside each month so you don’t find yourself going into debt at the end of 2018.
- Buying items during the year when you can get a good price, rather than November and December when they are at a peak price.
- There is seasonality pricing for all kinds of items, and one tactic is to purchase items immediately after Christmas for the next year when items are on sale. Many people buy holiday cards, lights, and other known expenses right after the holidays when they are 50% off.
If you fail to do these, then you may be joining the borrowers paying unnecessary interest; hopefully taking less than 6 years to pay it all off.