Consumer Debt Gets Tough to Manage Around the Holidays
The winter holidays are a joyous time, but not if you are struggling with debt. From Black Friday and Cyber Monday to last-minute sales just before Christmas, industry experts expect the average American to spend almost $1,000 per person on holiday gifts.
It’s easy to ignore how consumer debt can add up as we use credit cards to buy gifts and pay for holiday travel and celebrations. In a NerdWallet survey conducted by The Harris Poll, nearly three-fourths of holiday shoppers said they plan to use a credit card to purchase gifts this year. Meanwhile, approximately 48 million Americans are still paying off credit card debt from the last holiday season, NerdWallet says.
The bigger problem is that holiday spending often represents new debt that adds to existing debt. This snowball effect can worsen if that expected bonus from work doesn’t come through or it turns out there will be no tax refund in the spring. At Sasser Law, we see new clients every year who are overwhelmed with credit card debt and who need help consolidating their debts or seeking debt relief through Chapter 7 bankruptcy protection.
Serious financial problems do not usually stem solely from holiday spending. But a big holiday shopping season can prove to be the tipping point. A household financial crisis can be avoided by managing your credit card debt before it gets out of hand and not overdoing it with holiday spending.
Organizing Debt for the Holidays
Here are eight suggested steps to get a handle on your credit card debt this holiday season:
- Make a plan. It can help a lot to go into the holiday season with a budget. Figure out how much you can realistically afford for each person and stick to that. The best gifts aren’t always the most expensive ones. Consider making your own gifts or finding low-cost, meaningful options. At the end of the season, you’ll be thankful you gifted within your means instead of having to figure out how to pay off holiday debt.
- Shop smart and use rewards. Stores are always offering rewards and discounts during the holiday season. Your credit cards may also have special offers, such as free shipping or cashback. Using rewards and shopping deals can help you avoid racking up holiday debt in the first place. Shopping strategically can significantly cut down the amount you spend on gifts.
- Check one credit card off your list. If your debt is on more than one credit card, focus first on eliminating the balance with the highest interest rate. A Consumer Reports discussion about paying down holiday credit card debt says it is best to pay off the card with the highest annual percentage rate (APR) because it saves you the most money. Another approach is to pay off the smallest balance first to get a quicker sense of accomplishment and progress. Be sure to make at least the minimum payments on all your credit cards, after which you can focus on paying off the balance on one card. When you can check the first one off your list, move on to the next one.
- Make early payments. Many consumers overlook the fact that credit card interest is calculated according to the account’s average daily balance. This means that, though you are billed once a month, your cost increases day by day. You can save money by making payments as soon as you can instead of according to a monthly deadline. This is particularly easy online. If you get paid every other week, apply some money from each paycheck to pay your credit cards. As an expert suggested in Consumer Reports, if you skip going out for dinner one night, go online and put $25 toward your credit card balance.
- Play your cards right. Another approach to managing credit card debt is to consolidate your debt with a credit card that offers 0% interest on balance transfers and purchases for a limited time. Transferring balances to a card with an interest-free introductory period saves you money on interest for a period of time and consolidates your debt into a single payment. When you consolidate your credit card debt, you are taking out a new loan. You have to repay the new loan just like any other loan. The interest-free promotional period is for a limited time. The interest rate on your new credit card will rise and increase your minimum payment. Keep in mind that if you miss a minimum payment during the introductory period, the higher interest rate will immediately kick in and apply to the remaining balance.
- Consolidate with a loan. It may seem counterintuitive to take out a loan for your holiday debt, but a low-interest loan can help you reduce the number of credit cards you have and the amount you’ll have to pay back with interest. You may also consider taking out a personal loan instead of opening up a new credit card for your holiday shopping, as you may be able to get a much better interest rate on a loan.
- Ask creditors for help. If making the minimum payment on a credit card is going to be a problem, contact the company before the payment is due. In most cases, they will work with you to set up a payment plan you can handle. The company is primarily interested in getting the money you owe. As long as you are making an honest effort, the credit card company may work with you. If you miss a payment, call and explain. Ask them to waive the late fee. If it’s your first missed payment or the first in a long time, they may waive the penalty.
- Start saving. Get ready for the holidays all year long. Check with your local bank or credit union about setting up a Christmas savings account. If you put aside a little money from each paycheck, you will have the cash to spend when the holidays roll around instead of using your credit cards. Set a realistic budget for spending on gifts and make a plan to save at least that much. That way you can look forward to a New Year with more manageable holiday bills.
When Bankruptcy May Be Your Best Choice
If the prime driver of your debt problems is insurmountable credit card debt, a bankruptcy filing may offer you a fresh start. Credit card balances, medical bills, and personal loans are “discharged,” in bankruptcy.
The 2 primary options for individuals are Chapter 7 and Chapter 13. The fact that Chapter 7 is a “liquidation” bankruptcy scares some people. In a liquidation, a trustee sells off assets to pay off as much of the filer’s debt as possible. But North Carolina law allows property exemptions that may protect all or most of your assets.
In many cases, the debtor in Chapter 7 does not have to give up his or her home, car, or personal property, such as clothing, furniture, and appliances. They may also keep government benefits, such as unemployment, workers’ compensation benefits, veterans’ benefits, future Social Security benefits, and pensions, as well as payments for alimony, child support, and certain other assets.
In Chapter 13 bankruptcy, the debtor does not lose assets but the trade-off is that some amount of money must be paid back over the course of up to 5 years. The amount of the payoff depends on the debt being provided for, the debtor’s budget, and the debtor’s assets.
At Sasser Law Firm in Cary, NC, our knowledgeable bankruptcy attorneys help people in Raleigh, Durham, Chapel Hill, and throughout the Triangle get back on their feet from financial difficulties. If you are ready to talk about your financial situation, contact our North Carolina law firm today. We will be straightforward with you about whether we feel bankruptcy is the best route for you!
Note; this article was previously published in Nov 2019 and was updated for relevance and comprehensiveness in February of 2022.
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For more than 20 years, the Sasser Law Firm has been helping individuals and business owners sort through financial hardships to see the light at the end of the tunnel. Our North Carolina bankruptcy attorneys are all board-certified specialists, which means we have passed a complex exam, undergone a thorough peer review, and continue to earn legal education credits in this ever-evolving area of law.