Why the 4 Most Common Loans for Holiday Debt Are a Danger to Your Finances

Holiday shopping kicked off on Black Friday for many people. As Americans continue shopping for their family and friends this month, they might be taking a hit to their finances during a year when many are getting by paycheck to paycheck. According to a new survey from Debt.com, out of 1,000 Americans asked, 66% said they will “‘go into debt for holiday shopping.’”

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Michael Neuenschwander, certified financial planner (CFP) and the founder and principal owner of Outlook Wealth Advisors in Houston, told GOBankingRates in an email that he finds this news “troubling.”

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“Much of that debt is likely to be charged to credit cards, which currently have an average APR of just over 24%,” Neuenschwander wrote. “That kind of drain on your finances can be very hard to overcome, especially if you only make minimum payments or, worse, miss payments. It’s better to avoid going into debt whenever possible.”

Neuenschwander broke down the most common loans for holiday debt, how they can potentially ruin your finances and what you can do to prevent it.

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Neuenschwander explained the ways debt can harm one’s life.

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“With credit cards charging an average of just over 24% interest, it’s a good practice to look at that information in a different light: Is there an investment opportunity where you can reliably make 24% returns?” he wrote. “There isn’t, which is why it’s so important to avoid debt whenever possible: It’s very difficult to make up the financial impact of those interest rates.

“Too much debt or missed debt payments can also impact your credit rating. That can make it difficult to get loans for large purchases like a home or a car and can even in some cases affect your prospects with some employers.”

He noted that debt can cause stress, as well.

“It’s hard to avoid feeling anxious when you know you owe a lot of money,” he explained. “Think about whether that extra present is worth months or even years of worry as you work to repay your debts.”

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The survey also uncovered that in response to the question, “if AI ‘recommends ideal gifts for your loved ones, will you spend more to finance your holiday shopping?’” Sixty-five percent of respondents said that they would.

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