Does your wallet take a bigger hit during the holiday season? If so, you aren’t alone. According to a recent study by LendingTree, more consumers fall behind on their bills in December than in any other month.
LendingTree reviewed anonymized credit report data from October 2017 through September 2018 and broke down the percentages of people who missed payments on any active account by month. December led the way with 7.5% of consumers missing at least one payment. October, November, and February were close behind with approximately 7.4% of consumers missing payments.
Note the correlation to holidays. October through December is the prime holiday shopping season (not everyone waits until December 24th to shop). Kali McFadden, Senior Research Analyst at LendingTree, provides some insight: "The month to month variation seems to follow the pattern of struggling to meet bills right around holiday season, when people typically spend the most on gifts, travel, and hosting. People seemed to catch up a bit in January, maybe thanks to year-end bonuses, cash gifts or returns, but then struggle again in February." February includes Valentine's Day – a holiday you'd better not skimp on if you want domestic harmony the rest of the year.
After February, late payment percentages drop significantly. Only 5.8% of consumers missed payments in March. April's 5.4% represented the lowest percentage of missed payments of any month. Missed payments from May through September range from 5.5% to 5.9% of consumers.
Why the shift in March? Tax refunds are the most likely reason, although the improving economy may also play a role. The Federal Reserve of Atlanta's Wage Growth Tracker shows a jump in the three-month moving average of median wage growth between February and March of 2018 (from 2.9% to 3.3%), and growth continued to rise to 3.5% by September 2018.
How do you keep holiday spending from leading to missed payments and lower credit scores? It all starts with a budget – especially around the holidays, when we're in a spending frame of mind and tempted by impulse purchases. "Most of us really want to celebrate and feel good by going all out for the holiday, but is it really worth the long-term cost?" asks McFadden. "Little kids are happy with cardboard boxes to play with and older kids are probably ready to get some financial education (and practicing delayed gratification skills) around the holidays by learning about how much money there is in the budget for gifts and helping to make decisions based on practical family concerns. As for other adults and family members... If people reached out and said, 'Hey, can we skip gifts or set a $10 limit, or give each other cash instead of gift cards,' they may find more enthusiastic responses than they expected."
Make a realistic budget that covers the entire year, sprinkling in extra expenses for contingencies throughout the months. Don't forget to include annual expense like taxes, dues, or subscriptions. Part of your budget should include a set amount to put aside for emergency saving, as well as funds for major future expenses like a mortgage down payment. "Even if it's just $10 a week, that's something," says April Lewis-Parks, Director of Education and Public Relations at Consolidated Credit. "People feel like it's such a little bit of money, it won't help...but truly, have it become a habit and keep doing it week after week, month after month, year after year, so you have a cushion."
Don't let credit cards be a crutch. You may still make payments on time, but overspending can lead to partial balances and high interest charges.
Track your spending throughout the year and review your budget before the holiday shopping season starts. Are you on track to handle a spending increase, or do you need to slow things down? If you've tracked spending properly, you'll know where your greatest expenses lie and where you can afford to make cuts.
Avoid the temptation to dip into your emergency funds. That's for things like medical bills and car repairs, not for the latest high-definition TV or the newest smartphone.
Maybe you have the money, but in the busy holiday season, you simply forgot to make one of your scheduled payments. Consider setting up automatic payments through your bank account. If necessary, set alerts through your bank to remind you when payments are due and to make sure you have enough in your account to cover automatic payments – or, if you want to go old-school, when to mail a payment check.
December should be a time of joy, not financial stress. Plan now and make your holiday season as festive and debt-free as you possibly can. 'Tis the season to be jolly... and make all your payments on time.
A single late payment can have a cascading negative effect on your credit. To monitor your credit and make sure you're not being punished for late payments, join MoneyTips.