Beware of the Traps! Non-Prime Americans Are 62% More Likely to Incur Additional Debt vs. Their Prime Counterparts During Holiday Season

Holiday spending may cause many Americans to take on significantly more debt – particularly those with non-prime credit (scores below 700). About a third (32%) of non-prime consumers incur additional debt during the holiday season, according to newly released research from Elevate’s Center for the New Middle Class (CNMC). Non-prime Americans are 62% more likely to incur additional debt vs. their prime counterparts, and the average new debt incurred for non-prime consumers is more than $800.

“Everyone understands that the holidays are likely to cost a bit more than usual,” said Jonathan Walker, executive director of Elevate’s CNMC. “However, traditional tactics to spend less during this time generally don’t work. In fact, our research shows that many of those efforts correlate with higher consumer spending. Marketers know what they’re doing.”

Common tactics that consumers use to limit spending may actually lead to overspending, according to the survey of 1,026 US consumers, which was conducted just after the 2017 holiday season when spending recollections were still fresh. On average, consumers who shopped sales were 50% more likely to say they spent more than they thought they would, compared to those who did not shop sales. Non-prime sales shoppers were 62% more likely to have overspent than those who didn’t shop sales. Coupons don’t help much, either: Non-prime consumers who shopped with coupons were 49% more likely to have overspent during the holidays.

In addition to shopping sales and using coupons, the survey also assessed the success rates of tactics including tracking spending, strict budgeting, assigning a dollar amount per person, and giving homemade gifts. Strict budgeting was the most powerful way to control holiday spending.

“Non-prime consumers are actually incredible budgeters,” said Walker. Non-prime consumers are significantly more likely to budget vs. prime consumers – and 30% reported using this control tactic. Better still, non-prime consumers who budgeted were more likely to say they saw an improvement in their finances after the holidays.

To maximize success with a strict holiday budget, account for all expenses: Of various spending categories, non-prime spent 63% of their budget on gifts, 11% on travel, 13% on holiday meals, 6% on parties, 4% on decorations, and 3% on charitable giving. Prime totals were similar, with slightly more spending on travel and charitable giving.

But don’t forget the unexpected. Almost 60% of non-prime consumers (and more than 50% of prime) encountered an unexpected expense last holiday season – and this can lead to acquiring more debt. Non-prime consumers who experienced an unexpected expense were almost 2x more likely to take on new debt – and prime were 2.5x more likely.

About the Research

About Elevate’s Center for the New Middle Class

Elevate’s Center for the New Middle Class conducts research, engages in dialogue, and builds cooperation to generate understanding of the behaviors, attitudes, and challenges of America’s growing “New Middle Class.” For more information, visit: http://www.newmiddleclass.org

Click here to view the full report.

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