Consumers were rightfully feeling merry about the holidays, but the ensuing debt hangover — along with a market downturn, rising interest rates and a government shutdown that’s now in its third week — could dampen all of that cheer.
While the surge in spending last month may have contributed to the best holiday shopping season in years, Americans racked up more than $1,000 in holiday debt at the end of last year, according to MagnifyMoney’s annual post-holiday debt survey. On top of that, 28 percent of shoppers went in to the season still paying off debt from 2017’s festivities.
Even still, most Americans continue to take on ever-increasing amounts of borrowing. According to data from the Federal Reserve, the U.S. surpassed $1 trillion in credit card debt — the highest level since the Great Recession.
The average household is carrying a $6,929 balance month to month and coughing up about $1,140 a year in interest, according to NerdWallet.
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The Fed’s recent interest rate hikes put an immediate crimp on those already-strained budgets. Tacking on the latest 25-basis-point rise will cost credit card users roughly $1.6 billion in extra finance charges, according to a separate WalletHub analysis.
Among those who put all those holiday presents on plastic, less than half of shoppers, or 42 percent, said they’ll pay off the debt in three months or less. More said it will take five months or more to pay it off, MagnifyMoney found. Nearly a quarter, or 22 percent said they will only make the minimum payments.
For a borrower making a minimum payment of $30 a month on a $1,230 tab, that means it would take more than five years to pay off the balance — and you’d also be shelling out $592 in interest over that time (assuming an annual percentage rate of 16.5 percent).
MagnifyMoney polled 769 adults in December.