38% of Millennials Go Into Debt for Holiday Gifts, Here’s How To Get Out of It
Written by
Yaël Bizouati-Kennedy
Edited by
Nicholas Morine
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‘Tis the season for giving, but unfortunately, this is also the season where many Americans can get financially burdened by holiday spending, and for some of them, end up in debt.
In fact, a new SoFi Spending & Saving research study found that close to a third of adults (31% of those polled) have gone into debt in the past to finance their holiday shopping. Millennials were most likely to go into debt (38%) when buying presents.
In comparison, 28% of Gen Zers, 31% of Gen Xers and 25% of boomers fell into debt because of overspending on holiday gifts.
Kendall Meade, CFP and financial planner at SoFi, said that this is not surprising because millennials typically have a large amount of existing debt already, which can make it harder to budget and/or save.
She further noted that — as of the 2022 Survey of Consumer Finances — millennials were the group that had the largest percentage of people holding some sort of debt, as well as the second highest amount of debt of any age cohort.
“This can make budgeting difficult and be very stressful. In addition to this, many millennials may be starting families or have young children which can also add additional financial stress such as paying for daycare and having more holiday gifts to buy,” added Meade.
So, what steps can millennials take to get out of holiday spending debt?
Get a Budget in Place
For millennials who start out the new year with holiday debt, the first step — which might also serve as a great new year’s resolution — is to get a budget in place. This advice comes courtesy of Austin Kilgore, analyst with the Achieve Center for Consumer Insights.
“That’s the best way to know exactly what’s coming in and out each month and to get a handle on where you stand financially,” said Kilgore. “Keep it simple and use whatever tool works for you and that you’ll use consistently. If you use an app, be sure to select one that predicts monthly cash flow and identify unnecessary or non-essential spending so you can meet your goal of paying down debt.”
Kilgore added that, according to previous Achieve studies, almost 40% of millennials don’t have a savings account. This could be an excellent time to open one and take advantage of the higher interest rates now available.
Pay Off Your Debt
Once you have a good budget in place, you can determine if you can pay off the debt on your own using the snowball or avalanche method.
If not, look into qualifying for a balance-transfer credit card. However, these cards are usually available only to those with good credit, Kilgore added.
In addition, for some millennials, a personal loan might help, as interest rates can be substantially lower than on credit cards.
Finally, a debt management plan can offer a slightly lower interest rate on a credit card.
“Offered by credit counseling firms, these plans also come with monthly fees, so it pays to do the math and see if the slightly lower rate would help,” he said.
Review Your Subscriptions
SoFi’s Meade said people estimated they spend $86 a month on subscriptions, but when they reviewed their spending, it was closer to $219 a month.
“That’s around 2.5x what they thought they were spending. It is easy for a bunch of small $10 subscriptions to add up,” she said. “So it is important to review any free trials that may have expired you need to cancel and also any subscriptions that you no longer use. If you have five different streaming subscriptions you may narrow it down to one or two.”
Beef Up Your Emergency Fund
Another tip, according to Meade, is to aim to save three to six months’ worth of expenses.
“This can help you get through tough times without having to rack up high interest rate debt,” she said, adding that doing so can also help give you peace of mind. It is important to make sure your emergency fund is safe and accessible.
She added, however, that many people are tempted to invest their emergency fund. This can be a big mistake.
“Make sure your emergency fund is earning a bit of interest for you. A higher APY will help your money grow faster,” she said.
Start Saving for Gifts ASAP
Meade said that if you have to put gifts on a credit card that you cannot pay off at the end of the month, you are paying interest. Over the past year, the average credit card interest rate has increased by about 5%, now above 20% interest for many credit cards.
“This means that if you put $5,000 worth of holiday expenses on your credit card and it takes you a year to pay it off, it actually costs you $6,000,” she said. “That’s an extra $1,000 these expenses actually cost you.”
In turn, it is important to save up throughout the year for any holiday expenses you anticipate, such as gifts and travel.
“My biggest tip for those saving for any financial goal is to automate your savings so that you are not relying on willpower alone,” she added.
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