How much money holiday debt took over in 2022

The percentage of Americans entering into debt because of holiday spending decreased marginally in the 2022 holiday season, despite high inflation and rising interest rates. This type of debt is referred to as HOLIDAY DEBT. By nature, the majority of it is owed on credit cards or high-interest personal loans. Almost 60% of people (59%) claim that using credit cards significantly contributed more money to their debt load.

The following most often reported sources (24%) were buy-now, pay-later loans, and store credit cards. Millennials (29%) and GenZ'ers between 18 and 25 (26%) have mostly used these loans in the past year. Baby boomers aged 57 to 76 (13%) and those making $100,000 or more yearly (18%) were the groups least likely to use those resources to generate holiday debts.

Strangely, borrowing from friends and family was the only source of holiday debt that was more prevalent in 2022 than in 2021. Compared to 12% a year earlier, one in five borrowers (24%) claim that was the cause of their debt. It can be due to increased interest rates and uncertainty caused by banks making it more difficult for those with bad credit to receive personal loans.

Last year's holiday shoppers used credit cards and other forms of borrowing due to high inflation and rising interest rates, leaving them with larger amounts. In a new LendingTree survey, just over one-third of consumers (35%) took on debt during the holiday season, down from 36% last year. However, borrowers'; average loan burden increased by 24% from $1,249 in 2021 to $1,549 in 2022.

The percentage of people who borrowed a personal loan for the holidays but did not intend to do so increased (63%, up from 54% last year). It is also seen that more than one-third of consumers (37%) will take five months or more to pay down their credit card debt balances, up from 28% last year.

Parents with children under the age of 18 (48%), millennials between the ages of 26 and 41 (43%), and people making between $50,000 and $99,999 (41%) are the demographics most likely to have incurred debt.

What are the basic problems with Holiday debt?

Depending on how much you borrow during the holiday season, excessive debt might become a significant issue. More consumers delay paying off holiday debt for five months or more due to a lack of budget or cash.

A small debt you can pay off to your credit card company in a month or two is not a big concern. Likely, you won't accrue much interest over that time, and the debt won't significantly impact your finances. But the situation might change when you spread that debt over five months or longer, especially when interest rates are so high. That is the situation that many Americans will be in by 2023.

A noteworthy increase is seen from 28% a year ago to 37% of those who incurred holiday debt in the 2022 holiday season and may take five months or longer to pay it off. The situation is significantly worse for women (42%) and Gen Xers aged 42 to 56 (47%).

According to Federal Reserve data, the average interest rate for a card with a balance today is 18.43%, so if someone waits five months to pay off a $1,549 balance, they will end up paying an additional $48 in interest.

If they extend the payback period to 10 months, they will incur an additional $108 in interest. If the borrower extends the payment period or the interest rate increases, the numbers will continue to rise. It's crucial to settle that balance as soon as you can because of this.

Holiday debt also has another negative consequence. It's not just the shortage of funds that's causing problems. A severe lack of funds resulted in a sharp rise in denial, stress, anger, and anxiety.

When dealing with debt, the financial stress it has on you can be almost as detrimental as losing your electricity, having your car repossessed, or having your credit score fall so low that it will be difficult to receive credit in the future.

According to a Federal Reserve Bank of Philadelphia analysis from 2021, 2 million households owe nearly $15 billion in late rent on housing. According to National Equity Atlas research, that amount is larger than $21 billion.

Regardless of the amount or the cause, debt triggers anxiety in our minds. Low self-esteem and cognitive decline are some of the negative impacts caused by holiday debt. That means that when you're stressed out because you can't pay your credit card bill, you won't be mentally prepared to learn, remember, pay attention, or solve problems.

That wasn't all that shocking, but a research team found that even just contemplating the possibility of financial insecurity was enough to make the pain worse.

What psychological effects does Holiday debt have on your mental health?

According to some research, stress from financial anxiety weakens your resistance to psychological issues like mental health disorders. According to other studies, mental health issues erode self-control, increase spending, and impair one's ability to make sound financial decisions.

There are numerous different problems and levels of severity that fall under the umbrella of "mental illness". Whether it is a minor problem that seems to be going away or a serious, pervasive one, it is crucial to be aware of it, acknowledge it, and take action to solve it.

Behavior patterns that encourage certain people to spend recklessly can lead to debt just as easily as a financial emergency brought on by a car accident. Regardless of how one becomes behind on their payments, being in debt can cause uncomfortable emotional reactions.

The most fundamental aspects of our financial lives may be the source of many behavioral habits. As they come to terms with the fact that they cannot repay their holiday debt load or may have to default on them, most borrowers report a decline in mental health and rising financial pressures.

Here are some typical psychological and emotional problems connected to holiday debt, regardless of the total amount:

Denial

While some people feel the weight of debt and financial stress, others attempt to tune it out entirely. Even with repeated reminders and late payment notices you could get, it's very common to be in denial about your debt. Unfortunately, even if you can entirely avoid your debt payments, doing so will only provide momentary relief and frequently increase your debt amount.

Denial can show up as a refusal to deal with the debt and open bills and bank statements that arrive in the mail after holiday shopping.

The following are a few signs of debt denial:

• Assuming you owe a lower debt amount.

• Whenever you believe a collection agency is calling, you ignore the call.

• Not opening your bills and stashing them in a drawer.

• Using a credit card till its max limit, and then getting a new one.

• Having a concept that everybody else is experiencing financial stress and following your path to save money.

Staying in your denial might increase your debt load in several ways. Failure to pay bills on time might result in late fees and possibly higher interest charges. Your balance could increase if you merely pay a minimal amount toward a high-interest personal loan.

Stress

Being concerned about how you'll handle your money spending and debt is normal. Practically, it is impossible to ignore it when you have a mountain of unpaid debt weighing you down.

According to a 2022 survey by Lending Tree, American families have average credit card debt of $6,569 per person. Over the course of approximately 506 million credit card accounts, Americans owe $841 billion in total.

Significant debt can also make jobs more stressful for you. Your effectiveness at work may be impacted by sleep disturbance brought on by stress. Stress about your job's importance may make you take on too much work or keep your mental health difficulties a secret. Unfavorable behavioral changes might result from stress, which holds for all types of stress, including financial stress.

Debt-related stress can cause chronic stress, which raises the risk of drug and alcohol dependence and the likelihood of suicide. According to the American Psychological Association's annual Stress in America poll, 87% of Americans say that the growing cost of living is a significant source of worry. The study discovered increased Americans' anxiety about the economy and their money.

Stress can negatively affect our short- and long-term health, as well as our regular activities and interpersonal connections.

Anxiety and Depression

42% of US adults claim that worrying about money and coping with debt negatively influence their mental health and can cause various issues like anxiety, stress, and despair. 40 million Americans, according to the National Institute of Mental Health, experience anxiety. A big trigger for such mental diseases is anxiety.

Financial anxiety stems from multiple reasons, including persistent worry about money, overwhelming sensations, and a sense of helplessness. Research by the Royal College of Psychiatrists discovered that 50% of adults with debt problems also experience mental health problems. This could be anything from a consistent feeling of anxiety and low mood to a severe mental illness.

Low self-esteem and hopelessness develop major depression in holiday shoppers. People who experience depression occasionally try to treat themselves to shopping sprees, gift-giving, self-care or other mental escapes through spending money in daily life. This might result in even greater debt.

So, depression has the opposite impact of what is intended; it encourages impulsive expenditure. As a result, people are getting low on extra cash to pay off debts and increase debt, anxiety, fear, and hopelessness.

Frustration and Anger

Holiday spending and debt can be prime reasons to trigger frustration and anger. In any form, debt is difficult to accept, and when it goes beyond your control, it can be very frustrating.

It's one thing to deal with holiday season expenses incurred through credit card purchases that made your life more enjoyable during vacations, shopping sprees, and dining out. But managing debt after the holiday may be particularly frustrating when you notice the huge bills on credit card debt or personal loan monthly payment notices piling up on your desk. It'll possibly trigger financial stress as you have no extra cash to pay those bills.

Anger problems increase when the situation deteriorates. In the medical community, the syndrome is known as Debt-Anger Syndrome.

Victims become angry rather than panicking or denying their difficulties. They are enraged with their creditors for sending them bills regularly, the mailman for delivering the bills, their bosses for not paying them more, their spouses for not earning more money, their kids for asking for more pocket money, and themselves for getting into this situation. Simply put, they start hating their lives.

Due to Debt-Anger Syndrome, relationships can be ruined severely. But the physiological effect can also impact physical health in the form of heart disease, migraines, and lowered infection resistance.

Fear

You could start thinking about the consequences of debt. If you're finding it difficult to pay your debts, you could think about bankruptcy, eviction from your home, foreclosure, losing your utilities, or debts going into collections. You might think you'll lose your job or face financial difficulties due to unforeseen events like your car breaking down.

Embarrassment and Shame

Unfortunately, in our society, one's success is frequently equated with money and material items he/she possesses. It's understandable if you feel humiliated or embarrassed about having debt. Most people don't want their relatives and friends to know they are having financial difficulties because debt is frequently considered a negative thing.

You can feel ashamed of your low income, poor money management skills, or your compromised financial situation keeps you from having the life you want. We frequently invite people to expensive dinners during holidays, purchase gifts for friends and family that we cannot afford, and keep trying to match their level of holiday spending.

Bitterness

Anyone who has debt knows how difficult it can be, primarily if it affects your marriage, partnership, or family. Blaming your partner for bringing more debt into the relationship, not having extra cash, or having spending habits that may have contributed to debt is not uncommon.

Apart from infidelity, disagreements about finances are one of the main reasons for divorce in America. Debt problems and a lack of communication can cause tension and fights in a marriage. It's typical to look back with regret, whether it was excessive holiday shopping or something else.

Can psychological issues or mental illness cause holiday debt to be forgiven?

It depends on a few things whether your lender/creditor or their collection agency will entirely forgive your debt.

• The amount you owe

• How long have you owed the money

• The extent of your mental illness and financial stress

• How difficult is the circumstance for you

• Your present work status

If you owe less money, it's more likely that your creditor won't spend as much time trying to collect it or make an effort to send your debt to a collection agency.

You can call your creditor after the holidays and explain your reason. You can get it cleared if the debt is small enough (especially if you've previously made some payments toward it).

Tips to Reduce psychological and financial stress after holidays

The pressure to spend money on gifts, decorations, and travel can be overwhelming, and the fear of being unable to pay off the resulting debt can cause significant stress when the holidays are over. Paw Vej, Chief Operating Officer, Financer.com explained - Most people create a financial goal before the new year, so realizing that you are in debt at the start of the year can induce anxiety and stress in those who are mindful of their finances.

There are a few tips that you may follow to handle the situation:

Revise your budget plan while accounting for rising inflation rates

Commit to a payment schedule where you prioritize your bills while chipping away your debt. Then, consider looking at the numbers and realizing that your debt is decreasing. Dennis Consorte, Digital Marketing Leadership Consultant for Startups, Snackable Solutions, explained - You may not pay down your debt as fast as you'd like, but if you put a system in place, you can reach your goal with time. From there, commit to responsible spending during the next holiday season.

Spend time determining non-essential areas of spending where you can make up the budget gap. You may:

• Use public transportation rather than using your car.

• Find meals that are both nutrient-dense and cost-effective.

• You can lower your entertainment expenses by watching movies at home.

• Instead of buying new clothes, start browsing at resale stores.

• Start borrowing books and videos from the library.

• Prepare meals at home rather than dining out.

You may control costs and protect your mental health during the holidays by implementing minor adjustments in the budgets like these.

Look into holiday money-saving strategies

Numerous credit cards offer travel rewards programs that let you earn points for purchases or extras like airline miles or hotel deals. With proper planning, you may reduce your spending because paying off your monthly balance gives you valuable benefits.

Samantha Odo, Real Estate Expert Chief Operating Officer at Precondo, Precondo suggested - One should not spend their money recklessly and must keep track of their expenses. Also, they should cut up their credit card if their expenditures exceed their earnings. This will cause them to cut back on their spending and, as a result, prevent them from falling into debt.

When buying presents for family and friends use creativity

Over the holiday season, you can:

• Draw names to reduce the number of gifts each person needs to buy.

• Set a price cap on gifts.

• Explore and create customized presents, such as handmade items or a letter of gratitude.

• Prepare special food at home rather than dining out at an expensive food joint.

• Provide gifts like child care, yard maintenance, or assistance with domestic chores.

• Avoid giving gifts to anyone besides the kids and old ones.

• Instead of sending gifts, consider making a donation to charity.

Involve a responsible person to help you

Ask a reliable friend or family member to check in with you frequently and keep an eye on your spending so that you can take care of your mental health while adhering to your ultimate holiday budget plan. Figure out how to discuss money with your partner and get help with the issue.

Nourish your mind

If you are worried about your finances, use mindfulness techniques like breathwork and meditation to ground yourself in the here and now. Keep yourself separated from technology and establish a connection with nature.

Eliminating mental pressures will enhance your holiday mental health and enable you to make money decisions with financial responsibility.

Seek professional support for mental health issues

You must find a strategy to help yourself if financial challenges like holiday debt lead to stress, depression, and other mental health issues. If you leave the problems untreated, they can make it harder to deal with financial difficulties.

You may contact experts with tools for resolving mental health problems. They provide coping techniques that can be useful in managing debt and other financial concerns. A skilled counselor can be helpful for patients to understand and manage their disease while offering emotional support.

Your doctor or another qualified medical expert can suggest assistance with minor mental health problems or recommend a therapist or psychiatrist trained to handle more serious issues.

Get expert help with your debts

There are several excellent debt reduction solutions available, including:

Credit Counseling

It offers suggestions from knowledgeable professionals who can assist in drafting a plan to address your financial problems. Services for credit counseling are frequently provided at no cost.

Debt Management Programs

They are made to consolidate credit card payments into a single, lower-interest monthly payment. Non-profit credit counseling organizations provide these services.

Debt consolidation

The approach combines unsecured debts, such as credit card balances, payday loans, medical bills, etc. A person may pay them off by obtaining a personal loan from a bank, online lender, or credit union to pay off the balances. Rather than multiple payments, the borrower has to deal with only one monthly payment with a low-interest rate.

Debt Settlement

It is a way to pay less than what you owe and save on overall debt payments. You need to negotiate with creditors and lenders to settle your debts. In most cases, settling with those who do take 3-4 years.

However, debt settlement negatively impacts credit reports and might cause a 100-200 point drop in your score.

Filing bankruptcy

It should only be used as a last choice if all other measures have failed. Bankruptcy may be your best option if you can't pay off your debts in five years or less.