Since March, millions of Americans have faced a tremendous financial struggle because of the coronavirus pandemic & recession that has led to mass unemployment.
Nine months later, the financial struggles have yet to subside.
Now it’s the holiday season, a time when money is spent and budgets are stretched.
To meet holiday expenses during an economic crisis, many consumers have no other choice but to rack up credit card debt and worry about repaying it later.
LendEDU’s newest study found many Americans, and the unemployed especially, are going to be taking on record amounts of credit card debt to cover costs during a holiday season marred by the pandemic and resulting recession.
Table of Contents
- Observations & Analysis
- Pandemic is Reducing Holiday Budgets & Leading To Credit Card Debt
- For 63%, Credit Card Debt From the 2020 Holiday Season Will Be the Most They’ve Ever Taken On
- For Most, Holiday Debt Just Piling Up On Top of Earlier Credit Card Debt From Pandemic
- Americans Losing Sleep Over Large, Pandemic-Induced Credit Card Debt Balances
- Three Products to Help You Tackle Credit Card Debt
- Full Survey Results
- Methodology
Note: If you would like a raw file of any data found below, or if you would like to see a specific breakdown (by age, state, gender, etc.), please email me at [email protected]
Observations & Analysis
All data is based on an online survey of 1,000 adult Americans commissioned by LendEDU and conducted by research firm Pollfish. The survey was conducted on December 1, 2020. For some questions, the answer percentages may not add up to 100% exactly due to rounding.
Pandemic is Reducing Holiday Budgets & Leading To Credit Card Debt
67% of all respondents indicated they are reducing holiday shopping this year because of the coronavirus pandemic and its economic impacts.
While that’s a high percentage to begin with, take a look at how the percentages change when only respondents who have been laid off from their jobs during the pandemic are counted.
For nearly all Americans that have had their jobs impacted due to the coronavirus pandemic, holiday budgets will be reduced.
Many of these people will also have to take on credit card debt to cover their holiday season shopping after seeing their own personal savings wiped out during the pandemic recession.
One-third of all respondents will be financing holiday purchases via credit card debt, compared to 48% of respondents who were laid off due to the pandemic, and 51% of respondents who are still laid off because of the pandemic.
For consumers, especially the unemployed, racking up credit card debt is the only choice when bank accounts have been drained during an economic crisis. This can become a major issue when the economic crisis coincides with the holiday season because debt can rapidly snowball.
Amongst those taking on credit card debt for holiday shopping, we asked why. 25% said because they have no personal savings left to spend, while 24% said they need to use the personal savings they currently have left on more important things like bills or food, and 23% indicated they want to hold onto their savings for an emergency.
Another 17% answered, “there’s just no way I can cover all of the costs out of pocket and need to utilize credit card debt.”
For 63%, Credit Card Debt From the 2020 Holiday Season Will Be the Most They’ve Ever Taken On
For respondents that are resorting to credit card debt to finance holiday purchases, we first wanted to see the estimated average amount of debt.
As the poll participant’s job situation gets worse, the more credit card debt they will be amassing during this holiday season that is dragged down due to the pandemic recession.
And for about two-thirds of all respondents taking on credit card debt during this holiday season, the debt will be the most they have ever taken on as a result of holiday shopping.
63% of all respondents taking on credit card debt due to holiday shopping amidst the pandemic recession will be taking on a record amount of debt. That percentage spikes to 75% when only factoring in respondents who are still unemployed because of the pandemic.
While this is bad news for consumers, it’s great news for credit card companies, who make a large chunk of their money from credit card interest.
How Does Credit Card Interest Work?
Credit card companies make a lot of their money from credit card interest when you are unable to pay your monthly balance in full and on time. Interest is charged on the remaining monthly balance, and that charge will be added to the next billing cycle.
For example, the current average credit card interest rate is 16.43%. According to our report, the average credit card debt balance from holiday shopping is $1,822.
With that debt balance and interest rate, the average consumer will owe the credit card company $24.95 in interest charges each month.
All that said, you do not have to worry about credit card interest charges if you are able to pay off your entire monthly balance during the applicable billing cycle.
In more good news for credit card companies, we found a decent portion of these respondents are taking out another credit card just for this year’s holiday shopping.
24% indicated they are taking out a new credit card and using it to rack up debt from this year’s holiday shopping, while 68% are just adding to the existing balance of a credit card they currently have.
Remember, if you wind up with a big credit card balance you can consider a balance transfer credit card that may help you save on interest and lower your debt.
For Most, Holiday Debt Just Piling Up On Top of Earlier Credit Card Debt From Pandemic
Unfortunately, the credit card debt consumers are taking on due to the holidays is just compounding on top of earlier debts amassed because of the pandemic-induced economic crisis we have faced for the last nine months.
With the vast majority of respondents simply just adding to their credit card debt balances that have been growing throughout the pandemic, we found out how much debt they previously had before building on top of it with holiday shopping.
Combine these estimated average credit card debt balances with those found earlier that pertained strictly to credit card debt amassed due to holiday shopping, and many Americans are going to be dealing with quite a serious debt burden by the end of 2020.
For example, for all respondents the average combined credit card debt balance is $3,972. For respondents who have lost their jobs during the pandemic, the balance is $4,455. And for respondents who are still out of work, the balance is $4,817.
The pandemic and its negative economic impact have led to a lot of Americans taking on a lot of credit card debt to get by and debt brought on due to holiday shopping has made it even worse.
This will have its financial repercussions over time, but we also found it is having some serious mental and physical consequences right now.
Americans Losing Sleep Over Large, Pandemic-Induced Credit Card Debt Balances
Americans, especially those who have had their jobs impacted by the pandemic, indicated they are losing sleep as a result of credit card debt that has built up due to both the pandemic and holiday shopping.
More than half of all applicable respondents, 55%, indicated they are losing sleep due to the credit card debt amassed as a result of both holiday shopping and the pandemic recession. Even worse, 72% of respondents who are still out of work are struggling with sleep.
Generally, the holidays tend to be a stressful time for most people. But in 2020, consumers are dealing with a pandemic, a recession, and a whole lot of credit card debt as a result, which is making this holiday season one of the more unsettling ones yet.
Three Products to Help You Tackle Credit Card Debt
As a consumer, you should never be content with taking on credit card debt. It may be absolutely necessary to do so in the event of an emergency, but in most other instances you need to weigh the pros and cons.
For example, is splurging on holiday presents for family and friends worth it if the end result is you repaying a large credit card debt balance over multiple years?
If you do wind up with debt and are looking for effective products to help repay it, there are a few to consider.
Balance Transfer Credit Card
One of the most common ways to tackle credit card debt is through a balance transfer credit card. The best balance transfer credit cards will have no annual fee and a 0% introductory APR on balance transfers.
This means you can transfer your existing credit card debts onto a new card, and those debts will accrue no interest during the introductory period, which could last up to a year depending on the card.
So, 100% of your monthly payments during the introductory period will go towards the principal debt balance. If you make on-time and aggressive payments during the introductory period on a balance transfer card, you can rapidly diminish your credit card debt.
Debt Consolidation Loan
Debt consolidation loans, which are essentially personal loans, are popular for credit card debt repayment because they generally have lower interest rates than credit cards.
By taking out a debt consolidation loan, you can place multiple credit card debts into a single monthly payment with a fixed interest rate, which should make repayment a whole lot easier.
It’s also possible the personal loan lender extends your repayment term, which could reduce your monthly payments.
Home Equity Loan or HELOC
If you are a homeowner with credit card debt, you could also consider using a home equity loan or home equity line of credit (HELOC) to consolidate your debt.
Because your home acts as collateral, you can often consolidate your credit card debts at a lower interest rate than what you were previously paying.
Just be aware of the common fees that come with either of these products, like closing costs and origination fees.
Full Survey Results
All data is based on an online survey of 1,000 adult Americans commissioned by LendEDU and conducted by research firm Pollfish. The survey was conducted on December 1, 2020. For some questions, the answer percentages may not add up to 100% exactly due to rounding.
Note: If you would like a raw file of any data found below, or if you would like to see a specific breakdown (by age, state, gender, etc.), please email me at [email protected].
1. Due to the coronavirus and its economic impacts, were you laid off from your job?
- 27% of respondents answered, “Yes”
- 70% of respondents answered, “No”
- 3% of respondents answered, “I’d rather not say.”
2. (If “Yes” to Q1) Are you still unemployed as a result of the coronavirus pandemic and its economic impacts?
- 67% of respondents answered, “Yes”
- 32% of respondents answered, “No”
- 1% of respondents answered, “I’d rather not say.”
3. Due to the coronavirus pandemic and its economic impacts, will you be reducing the amount you spend on holiday shopping this year?
- 67% of respondents answered, “Yes”
- 28% of respondents answered, “No”
- 6% of respondents answered, “Not sure/I’d rather not say.”
4. Due to the coronavirus pandemic and its economic impacts, will you be taking on credit card debt to cover the costs of holiday shopping?
- 33% of respondents answered, “Yes”
- 60% of respondents answered, “No”
- 6% of respondents answered, “Not sure/I’d rather not say.”
5. (If “Yes” to Q4) Why do you need to take on credit card debt to cover the costs of holiday shopping as a result of the coronavirus pandemic and its economic impacts?
- 25% of respondents answered, “I have no personal savings left to spend.”
- 24% of respondents answered, “I need to use the personal savings I currently have left on more important things like bills, food, etc.”
- 23% of respondents answered, “I want to save the personal savings I currently have left in case of an emergency.”
- 17% of respondents answered, “There’s just no way I can cover all of the costs out of pocket and need to utilize credit card debt.”
- 8% of respondents answered, “I want to make sure my family & friends get the gifts they want and that requires taking on credit card debt.”
- 3% of respondents answered, “None of the above/I’d rather not say.”
6. (If “Yes” to Q4) How much credit card debt do you think you will take on to cover the costs of holiday shopping?
- The average amount was $1,822.
7. (If “Yes” to Q4) Will this be the most credit card debt you have ever taken on as a result of annual holiday shopping?
- 63% of respondents answered, “Yes”
- 32% of respondents answered, “No”
- 5% of respondents answered, “Not sure/I’d rather not say.”
8. (If “Yes” to Q4) Have you taken out a new credit card to put the debt on from holiday shopping, or will you be adding to the balance of an existing credit card?
- 24% of respondents answered, “I took out a new credit card just for this year’s holiday shopping.”
- 68% of respondents answered, “I am adding to the balance of an existing card.”
- 8% of respondents answered, “Not sure/I’d rather not say.”
9. (If “Yes” to Q4) Due to the coronavirus pandemic and its economic impacts, did you already take on more credit card debt than you would have liked to cover expenses prior to and unrelated to holiday shopping?
- 74% of respondents answered, “Yes”
- 24% of respondents answered, “No”
- 2% of respondents answered, “I’d rather not say.”
10. (If “Yes” to Q4 & “Yes” to Q9) Due to the coronavirus pandemic and its economic impacts, how much credit card debt did you take on prior to and unrelated to holiday shopping?
- The average amount was $2,150.
11. (If “Yes” to Q4) Are you losing sleep over the amount of credit card debt you will end up having as a result of both holiday shopping and the coronavirus pandemic?
- 55% of respondents answered, “Yes”
- 43% of respondents answered, “No”
- 2% of respondents answered, “I’d rather not say.”
12. (If “Yes” to Q4) How many years do you think it will take you to repay all the credit card debt you will have incurred as a result of both holiday shopping and the coronavirus pandemic?
- The average amount of time was 4 years.
Methodology
All data found within this report is based on a survey commissioned by LendEDU and conducted online by survey platform Pollfish. In total, 1,000 adult Americans were surveyed. The appropriate respondents were found via Pollfish’s age filtering feature. This survey was conducted on December 1, 2020. All respondents were asked to answer all questions truthfully and to the best of their abilities.
See more of LendEDU’s Research here.