LendingClub: Consumers Need a Plan to Avoid the Holiday Revolving Debt Cycle

The holidays are firmly in sight.

LendingClub Senior Vice President of Membership and Lifecycle Strategy Amber Carroll said that as inflation remains entrenched, as we make our lists on who gets presents and what we’ll get them … those lists may be a bit slimmer than they once were.

“There remains continued pressure on household finances,” said Carroll. “Rising costs are creating financial strain.” She made note of the fact that consumers are spending more than $700 monthly, additionally, on everyday goods and services than they did just two years ago.

As a result, consumers are going to spend more time researching products and looking for deals. Because though these same consumers are cash-strapped and have limited savings, they still want to participate in the holiday season. The balancing act is a tough one, said Carroll, who noted that in many cases, consumers may “lean into” credit cards to pay for the additional costs.

But the slope can be a slippery one, said Carroll. The same households that splurge on nonessentials are the ones that might “spiral into a revolving debt cycle that’s tough to climb out of. And nobody wants to be paying for this holiday season into next summer.” A bit of triaging is in order, said Carroll, who added that individuals are focusing more on their immediate family members and reducing at least some of their gift giving that would have been slated for others — friends, other family members and even co-workers.

Many consumers, in seeking out deals and cheaper prices, are starting their holiday shopping even earlier — as 40% of shoppers, according to joint PYMNTS/LendingClub data, are starting their holiday shopping journeys earlier. In some cases, they’re opting for cheaper goods, or non-brand-name options, or pushing off bigger-ticket items they’d planned to make for themselves. A significant number of individuals, at about half of those surveyed, are taking on gig economy or part time work to give some added financial firepower to the coffers.

“And they are selling goods on eBay, or Etsy, and performing tasks via services such as TaskRabbit,” said Carroll.

Where the Pullback Will Be

The pressure to go the extra mile, while saving a few dollars here and there, is especially palpable for multi-member households — those households with children.

“We know from our research that there’s a direct correlation among household size, stage of life and financial lifestyle,” said Carroll. Refuting that old movie, she said, “it’s not cheaper by the dozen.” Households with kids under the age of 18 are more likely to be living paycheck to paycheck than those without children. And among those consumers who are living with friends or housemates, 77% live paycheck to paycheck.

As to where they might pull back: Clothes and electronics are high on the list.

In looking ahead, Carroll cautioned that any holiday budget ideally should be limited to the available cash on hand after paying monthly expenses — a mutually agreed-upon family budget may in fact rein in household-wide spending. And a holiday spending plan might also include “do it yourself options to show your loved ones that you care. And you won’t have to dig into your savings — and that creates some emergency padding for the emergency fund.”