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Holiday Debt Is up: How to Stay Out Of the Red on Black Friday

Posted By:  |  November 11, 2015  |  0 Comment(s)

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It’s that time of year again! A time for reconnecting with family and friends, for giving, for snowmen and hot chocolate, and for presents! It’s the holiday season, and for most of us, it’s a time to celebrate!

Unfortunately for many consumers, the holidays can also represent a time of increased financial hardship and debt. According to some recent data released by Equifax, one of the three foremost credit bureaus and credit monitoring corporations in the world, holiday credit card debt increased across nearly every major metropolitan area last year. This data suggests that between December 2013 and December 2014, holiday debt went up from $606 billion to $642 billion – and that number is still climbing.

You’ll notice from the chart below (click the chart to expand) that in some areas, like the Orlando and Houston-Galveston-Brazoria Metros, holiday credit card debt increased by nearly 10 percent last year:

This data brings up two important questions: first, why is holiday debt increasing so much? And second, what can we as consumers do to slow that rate down?

Why Holiday Debt Is Increasing

While the specific reasons why each person has chosen to increase his or her holiday spending (and therefore holiday debt) this year are wide and varied, we’ve been able to identify four main contributing factors to this phenomenon:

Debt Rollover from Previous Years

One simple reason why the holiday debt rate has been increasing over time is because many holiday shoppers are still trying to pay off debt from previous holiday seasons. In a 2014 consumer survey, ConsumerReports.org released statistics regarding holiday spending and holiday debt. While roughly 75 percent of those surveyed had paid off their holiday credit card debt (that is, debt accrued on purchases made between November and December 2013) by February 2014; however, nearly 10 percent of those surveyed reported they were still paying off these holiday purchases into November 2014, when the report came out.

Another 2013 survey by CreditDonkey discovered similar findings, with 12 percent of consumers reporting they did not pay off their holiday purchases prior to the next holiday season a year later:

payoff-holiday-purchases

The Economy Is Recovering

In a press release statement from Equifax, these increases in holiday spending are a sign that consumers are more confident that the economy is recovering. In the wake of 2008’s economic recession, many consumers avoided credit cards or increasing their debt because they were uncertain whether the economy would pick back up. But the significant increase in holiday spending between 2013 and 2014, to economists, is a positive sign that people are approaching debt more responsibly and kickstart the economy.

Stores Are Opening Earlier, and for Longer

In case you haven’t noticed, the term “Black Friday” is steadily becoming more conceptual, and less literal – well, at least the “Friday” part of it. Since 2008, major retail stores have been opening their doors for Black Friday sales earlier and earlier every year – and have been staying open during this weekend for longer. If you look at the chart below (click the chart for the full image), you’ll notice this phenomenon called “Black Friday Creep” has gradually shifted what was once Black Friday to Black Thursday.

While this trend does possess some inherent value for both businesses and customers, it also has the potential to expand the amount of money consumers will likely spend during the holiday season, which means increased debt.

Gas Prices Are Going Down

Believe it or not, decreasing gas prices this year may also be contributing to increased holiday spending and holiday debt. At a couple dimes north of $2.00 per gallon, gas prices have not been this low since before the Great Recession of 2008. According to the Consumer Fuels Survey by the National Association of Convenience Stores (NACS), over 25 percent of consumers expect to increase their spending this month, the highest reported this year. The NACS reports that four in five Americans believe falling gas prices have a positive impact on their feelings towards the economy (click the image below to expand):

Best Ways to Avoid Holiday Debt

But you shouldn’t let the numbers on debt discourage you from getting the most out of your holiday season. One major reason why holiday debt is increasing that the numbers don’t necessarily show is the fact that the majority of Americans don’t have a strategy in place to keep themselves out of the red during the Black Friday. Thankfully, we’ve got the steps right here to help you avoid a financial nightmare before Christmas:

Plan Ahead

For many, the Black Friday game plan amounts to little more than getting to the store early, and running towards the doorbuster sales faster than everyone else. If that were a unique strategy, it would also be an effective one; but as nearly everyone else has the same strategy, Black Friday ends up looking like the New York Stock Exchange:

That old adage of “making a list” and “checking it twice” applies to more than just Santa Claus and which children are naughty or nice; it applies to holiday shoppers as well. Planning out a list of gifts and where and when to buy them does require more time and effort, but will save you so much money when it’s all said and done. Retailers aren’t shy about posting when their doors open and what specific Black Friday or aptly named doorbuster sales they have inside. This information will give you a pretty accurate understanding of how much in total you’re going to spend for the holidays.

Space Out Your Purchases

When you hear “Black Friday,” you might be duped into thinking that Friday (or rather, Thursday, as the case may be) is the only opportunity that you’ll have to get in on all the savings before Christmas. BUT YOU WOULD BE WRONG! While retailers recognize the value of the volume sales Black Friday produces, it’s not like those are the only sales you’ll get before Christmas. That doesn’t mean you should wait until the last minute either (you won’t usually find as many discounts on Christmas Eve, for example). Here’s a basic template to help you space out and prioritize your purchases:

Black Friday/Thursday:

  • Electronics –  televisions
  • Entertainment – DVDs, video games, gaming consoles
  • Home Goods – cookware sets, kitchen appliances, vacuum cleaners
  • Toys – LEGOs, and basically anything you can find at Toys R Us

Cyber Monday:

  • Designer Clothing and Shoes – check online clothing stores for the best deals
  • Beauty Supplies – same goes for makeup and skincare
  • Travel – more specifically, hotel deals. Avoid airline tickets until January.

Between Black Friday and Christmas:

  • Gift Cards – discounts on gift cards are much more common in December.
  • Tools – While Lowe’s and Home Depot do offer some Black Friday deals, the best time to buy tools is after Black Friday.
  • Exercise Equipment – December sees a greater quantity of exercise equipment deals than November. This is because the New Year (and New Year’s resolutions) is just around the corner.

Set a Spending Limit

Perhaps the most difficult part of the holiday season is setting a spending limit on your purchases. Despite our best efforts, passing up promotions or holiday discounts is almost impossible; however, there are a couple of effective strategies to help you stay under budget during the holidays. One of them is to conduct a gift exchange. This is different from your company White Elephant exchange, in which you see who can get stuck with the worst gift.

Holding a simple gift exchange with your family or friends is a great way to make sure everyone gets a quality gift and that everyone stays on budget. We have a saying in writing circles that “creativity loves constraint,” and the same can be said in gift exchanges. Set the limit to $30 or so, and see what kind of creative solutions your family can come up with.

Use Credit Cards Wisely

First of all, BE CAREFUL WITH YOUR CREDIT CARDS! Treat them like cash, and avoid asking for limit increases during this time of year. Try to limit your spending to a preset amount that you’ll be able to pay back within a single billing cycle. We want to keep the Christmas Spirit with us all year, but that doesn’t mean you want interest from holiday purchases you following you into November 2016.

Best Ways to Pay Off Holiday Debt

Obviously not everyone is able to avoid holiday debt altogether, but thankfully, there are a couple of really smart ways to cut down you debt quickly:

The Snowball Effect

If you have taken out some holiday debt on multiple credit cards, the snowball effect means you start with the credit card that has the lowest balance and pay that card off as fast as possible – while still making minimum payments on the other cards. When you’ve paid off that first card, then you move onto the next card with the lowest balance. While you still may be paying more in interest over time, this method will help you develop good financial habits.

The Avalanche Effect

Similar to the snowball effect, the avalanche effect says you should attack the credit card with the highest interest rate first. This is the most effective way to reduce the amount you’re paying in interest as you work to pay off your holiday debt. Remember, interest is one of the main things that will prevent you from resolving your holiday debt, so this strategy could be effective if you’re paying high interest rates.

The Balance Transfer

The balance transfer strategy will only work if you plan to pay off your balance quickly. Simply transfer you credit balance to a new card with offers 0 percent interest for the first few months. This will allow you to make payments solely towards your principal balance without having to worry about interest – but it will only work as long as interest remains zero.

Consolidation

Another option is to consolidate your holiday debt. This solution is effective if you meet the following circumstances: 1. You have multiple credit lines that have different interest rates and 2. Your interest rates are particularly high. Working with a debt relief company to consolidate your holiday debt into one monthly payment at one lowered interest rate can be particularly useful if you’re working to pay off more than just your Black Friday purchases. Check out some of our top recommended debt relief companies if you feel this option is right for you!

Poll

  • How important is it to you for a debt consolidation company to offer financial education resources?
  • Takes your existing debt and try to settle with your creditors for a lower amount. If you pay off the settled amount, your debt will be considered paid in full.
  • Negotiates with your creditors on your behalf.
  • Fee based on a percentage of your total starting debt or a percentage of the debt they save you.
  • Most settlement companies have you create a separate "escrow" account where you will make monthly contributions over a certain amount of time to contribute to your settlement. Once there is a substantial amount of funds to show your creditors, the settlement company will try to negotiate a lower amount of debt.
  • Combines all your debts and creditors into one monthly payment.
  • Allows you to pay one monthly payment to the consolidation company, instead of multiple payments to different creditors.
  • You no longer owe your original creditors; instead you pay one monthly payment to your consolidation company.
  • Consolidation companies can help negotiate lower interest rates on your debts and help lower your total debt payment in the long run. A lower interest rate will lower the amount you owe in the end.
  • Allows you to consolidate all your different debts into one personal loan that can be paid off over time.
  • Can offer borrowers a lower interest rate with a longer payback term (compared to high-interest credit cards or medical bills). This will lower the amount of money required to pay off the loan over time.
  • Personal loan debt consolidation can be an effective way to raise your credit score quickly (within 3-6 months).
  • Borrowers can receive funds from their loan within only a few days.

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