The average addition to personal debt rung up by those Americans who went into debt this holiday season totaled $1,054, up from $1,003 a year ago and $986 in 2015. To make the new debt even more painful, 2017’s 5% increase was mostly added to high-interest credit card debt.
According to researchers at MagnifyMoney, 68% of Americans surveyed added to their credit card debt, up 8% year over year, while 17% of consumers used store credit cards and 9% used a personal loan.
The survey also noted that 64% of those who have new holiday debt did not plan for it and that lack of planning could be costly for the half of consumers who don’t plan to pay off the debt within three months.
Almost a third (29%) of those who plan to take more than three months to pay off their purchases say they’ll need at least five months to pay the debt, accruing interest on the debt along the way. Nearly 10% also said they would make only minimum payments on the debt. At a payment rate of $25 a month, it will take these consumers more than five years (63 months) to pay all the principal and interest ($505) on the debt.
Among consumers who took on new debt this year, 56% borrowed $999 or less and 26% ran up bills totaling between $1,000 and $1,999. For the other 18%, here’s the indebtedness breakdown:
- $2,000 to $2,999: 9%
- $3,000 to $3,999: 3%
- $4,000 to $4,999: 1%
- $5,000 to $5,999: 4%
- $6,000 or more: 1%
Only 12% said they planned to try to consolidate their debt or look for a balance transfer credit card that offered a better rate. Among those who had no plans to seek better terms, 27% said they don’t want to deal with another bank, 20% said there are too many traps, 23% said their loan terms were already low and 8% said they wouldn’t qualify for better terms. Another 10% said they didn’t know enough about making such a change.
Nearly half (49%) said the interest rate on their borrowing is less than 10%. One wonders if that includes the so-called deferred interest deals on some store cards. As long as a customer pays on time the interest rate is often 0%. One late or missed payment, however, and the full interest rate kicks in on the full amount of the debt, regardless of how much has already been paid down.
More details and information are available at MagnifyMoney.