A Payday Loan Make the Holidays Even More Expensive
If money is tight during the holidays, then using a payday loan to cover Christmas costs is tempting since the lending option gives borrowers access to hundreds of dollars. However, payday loans make the holidays even more expensive. High fees cause the interest rates for payday loans to escalate to outrageous levels, increasing the price tag for each Christmas item purchased.
Increasing the Cost of the Holidays by Using a Payday Loan
PalmBeachPost.com reports that because the average interest rate on payday loans is around 400 percent, purchases end up costing borrowers two to three times more than they would if consumers were to save up for the holidays.
When it comes to holiday shopping, it’s easy for people to become caught up in the season and overspend. Stop the Payday Loan Debt Trap is an organization dedicated to helping people stay out of debt, and this year, the group added up the costs of using a payday loan to cover the year’s top 15 Christmas gifts.
Hatchimals were one of 2016’s most popular toys. In the store, shoppers can pick one up for around $70, but if a consumer uses a payday loan to buy it, he or she will owe around $155. The Power Wheels Wild Thing Ride-on toy is another popular gift item, and stores sell it for about $330, but with a payday loan, the toy comes to around $725.
Along with expenses like Christmas presents, most people spend money on holiday parties and decorations. The season’s expenses add up quickly, and spending can spiral out of control. On average, consumers increase their debt by nearly $1,000 when the holidays arrive. Unfortunately, people who take on additional debt to cover the cost of the holidays may not see an end to it when the season passes. Debt frequently snowballs, following borrowers into the next year.
So, How Much Do People Spend Over the Holidays?
According to Finder.com, the average amount that people spend on gifts for the holiday season is $738. Estimates show that Americans will spend $181.2 billion on presents this year, and since most people don’t save up quite enough to cover the costs, predictions show that $103.3 billion of it will be paid for with credit. The site’s statistical team also determined that 16 percent of the country’s citizens intend to use credit cards to pay for their Christmas presents while 15 percent of them will use payday online loans to buy them.
The site’s survey found that 17 percent of Americans have failed to save money for this year’s holiday season. It also determined that just 1 percent of people don’t celebrate the season with gifts, which means that 99 percent of them do with many consumers racking up credit card, payday loan and personal loan debt.
Who Spends the Most During the Holidays?
Of all Americans, generation X, who are people ranging in age from 35 to 54, spends the most during the holidays. On average, these folks spend $895. Generation Y, which are people who vary in age from 18 to 34, spends the next largest amount at $667 on average while baby boomers, who are people aged 55 years old or older, spend the least at an average of $548.
However, baby boomers are more likely to use their credit cards to pay for Christmas. Statistics show that 45 percent of their gift purchases will be completed with plastic. Generation Y is the most likely group to seek a loan to pay for holiday gifts. According to Finder.com’s numbers, 24 percent of this age group’s purchases will be paid for with a bad credit payday loan, a personal bank loan or by borrowing money from a family member or a friend.
Generation Xers intend to borrow about 20 percent of their purchases, and baby boomers will borrow 16 percent of theirs. This survey also found that at least 15 percent of Americans intend to use payday loans to obtain the funds for some or all of this season’s gift buying.
How Payday Loans Escalate into Major Debts
When struggling parents decide to take out payday loans to give their kids a good Christmas, they may play it safe by borrowing just $200 or $300. People who borrow from payday lenders know that they must pay the money back within two weeks. These parents may believe that if they hold tight to their budgets, then they can pay the loan back on time.
Lenders of online loans charge borrowers around $45 for the funds, bringing the annual percentage rate, or APR, for the loans to 390 percent. Before taking out this kind of loan, borrowers should consider that the average credit card has an APR that ranges from 12 percent to 15 percent.
Because of this, if parents were to use a credit card to pay for their Christmas instead of a bad credit payday loan, then they would be charged around $36 in interest for the full year instead of $45 for a loan that lasts just two weeks. If they were to pay the credit card balance in two weeks as they intended to do with a payday loan, then they would pay just $4 in finance charges.
While the credit card scenario sounds like the obvious choice, it isn’t. The reason why most people turn to short-term online loans is that they are unable to qualify for a credit card or traditional bank loan due to bad credit or a lack of it.
Avoiding Debt is the Best Kind of Debt Relief
The Real PDL Help site suggests that the best way to avoid holiday debt is to plan ahead. When the Christmas season arrives, too many people face it without a plan, and this often results in their splurging on pricey presents and overspending. When overspending happens, they seek a loan to cover their holiday expenses.
Those who take steps to save the funds before the season arrives will be more likely to stay out of debt. Financial plans help people avoid overspending, but this action involves deciding the amount that they’d like to spend for Christmas and planning how to set this money aside throughout the year.
Planning ahead also involves shopping the sales. To avoid going into debt for gifts, consumers should find out when stores put their merchandise on sale. While Black Friday is known as the day for deals, this isn’t always the case. Consumers should shop around for the best prices.
Experiencing the Joy of Gift Giving Without the Debt
When the season’s revelers use payday loans to pay for gifts, they’re paying more. While short-term online loans make Christmas gift giving possible, the cycle of debt that these loans create isn’t worth the financial stress. Instead, borrowers with bad credit should embrace saving techniques that help them avoid debt. After all, this is the best kind of debt relief. To learn more about the debt that payday loans create, visit the Personal Money Store.