Like clockwork, the New Year is followed by the season of winter holiday bills. It’s a time that may cause some to sing the winter blues.
Some spending trends for the season… about 60% of shoppers planned to use cash and debit cards for at least some purchases, with credit cards also being a top-three choice. Factors like rising inflation and the cost of transportation impacted holiday shopping decisions, especially for lower- and middle-income households. More than half of all shoppers, and two-thirds of Baby Boomers, planned on using a credit card for holiday shopping.
Credit card use becomes troublesome if the balance isn’t paid off every month. Card balances increased 15% in the third quarter, the largest one-year increase in more than twenty years and just shy of a record. It doesn’t help that rates have risen to an average of 19%, an all-time high and up from about 16% last year. Of those with a balance, 60% have owed a balance for at least twelve months, 40% for at least two years, 28% for three years, and 19% for at least five years.
These statistics show that once present, a credit card balance can be a hard thing to get ahold of!
Fully one-third of credit card holders pay only the minimum amount, often as an automatic monthly payment. Automatic payments save on fees for late or missed payments, which is obviously good. The problem is that minimum payments usually represent only about 1% of the balance, including interest. Paying a card off with a $5,000 balance, while getting charged 19% at a minimum 1% payment can take over thirty years; even at a 3% payment it can take more than 15 years.
Using educational outreach, along with changing how balances are displayed on (physical and digital) statements, can help provide guidance to deal with a seemingly endless credit card balance. The analysis done by Chicago Booth researchers that I’ve included below shows that de-emphasizing options for minimum payments and emphasizing the total amount owed nudges people to pay off balances faster. Speaking with a financial professional can also help.
See below for a quick video of the Booth findings- and let me know your thoughts on this matter- click to email me here! I’ve also included a link to the full PwC 2022 Holiday Outlook Report, part of which I referenced above.
~ Brian Kasal- The Leadership Matrix
P.S.- Did you see my last Leadership Matrix post? Shooting for the Moon and Reaching for the Stars