Association of Military Banks of America

Going into Debt for the Holidays?

By: Amy Miller, AFC®

The holiday season has arrived, and we’ve all started thinking about the gifts we want to buy for those special people in our lives. As I worked on our family’s list of gifts and tallied up the total cost and hit our savings was about to take, it made me wonder…….what do we, as Americans, spend on the holiday as a whole and how are we paying for those gifts?

A recent survey by showed that around 40% of Americans say they plan on spending less this year than in previous years. However, since gift-giving and overspending is looked at as a holiday tradition that many aren’t willing to break from, it is predicted that we will ultimately spend at least the same or more. Around 10.5% more than 2020 according to the National Retail Federation (NRF). On average, that total expense is around $1,000, and it turns out, around 45% of shoppers are willing to take on debt for these expenses. Out of that number, around half will just add it to already existing debt.

Last-minute purchases seem to be the items that really break the budget, taking up around 36% of expenses. The remaining goes to regular gifts (27%), food (27%), decorations (17%), and new holiday outfits (16%).     

A growing trend for purchasing gifts is the increasingly popular Buy Now, Pay Later (BNPL) apps that many large retailers are partnering with to offer shoppers a way to split the cost of purchases into installment payments spaced over a predetermined time frame. Although installment plans aren’t new, these apps are more enabling than plans of the past (think store layaway) and ultimately encourage individuals that may not have enough cash to cover higher-priced items, to push the budget a little and pay it off in time.

Another survey I came across by online-only bank, Oxygen, shows that 56% of us have made a purchase on credit that we couldn’t afford to pay back right away. It also showed Gen Z is leading the way with almost half reporting missed payments and large purchase regret.

While BNPL apps generally won’t affect your credit score, they do have the option of reporting missed and late payments to the credit bureau since it is basically borrowing money from a credit card company, bank, or some other financial service.  They can also charge late fees and send nonpaid accounts to collection agencies.   

For those not using a BNPL app, the traditional credit card is the other option used most often for financing gift giving and in the long run, is one of the most expensive ways to finance the holiday. Like BNPL apps, credit cards can lead to overspending and long-term financial harm when missing payments and accruing fees. Bouncing back from this spending doesn’t come quickly for most. If a shopper was to finance the entire $1,000 on a 15% APR credit card and only pay the minimum (appx. $25/month), it would take until 2023 to pay it off – right after you charge Christmas 2022. Is this the definition of a vicious cycle?

I know that saying “I can’t afford that” is hard when you are full of holiday spirit and hoping to find the perfect gift for your loved one, but in the long run, it’s best to be realistic, stick to a budget and leave the plastic and apps out of your shopping experience. 

I hope this info encourages you to think outside the box, make a budget and stick to it, walk away from the overpriced gift and try to end the season without debt and worry of repayment…..and maybe consider opening a savings account for next year’s shopping list.