Lingering Holiday Debt Could Have Lasting Financial Effects

Lingering Holiday Debt Could Have Lasting Financial EffectsCOSTA MESA, Calif.  (Profitable.com)  Though the holidays have ended, some consumers may still be feeling the “squeeze” from their purchases. According to new data from Experian, the leading global services information company, the average person still owed more than $4,200 in bankcard debt at the end of 2010.

The data also shows that the average number of bankcards that consumers hold has dropped (nearly 23 percent since 2007) to 1.97 cards. However, this has contributed to cardholders utilizing, on average, more than 30 percent of their total available bank card balance, which is a nearly 10 percent jump since 2007. Carrying high balances impacts utilization rates which play a significant role in how credit scores are calculated. For example, utilization rates account for approximately 23 percent of a consumer’s VantageScore®.

“We want consumers to understand that overspending at the holidays or at any other time of year can often have broader implications to their overall fiscal fitness,” said Maxine Sweet, vice president of public education at Experian. “By carrying over credit card balances and utilizing a significant portion of their available balance, they can potentially negatively affect their credit scores, which can in turn, hurt them when it comes to applying for other types of credit down the line including mortgages and car loans. It’s important for consumers to get that debt under control before it has a lasting impact on their credit scores.”

Experian® looked at cities across the United States and identified the 25 with the most bankcard debt in December 2010. San Antonio, Texas, topped the list with the highest average balance of $5,177.

Key findings:

  1. San Antonio, Texas – average bankcard balance: $5,177 (20.9 percent higher than the national average) – Bankcard balance average has stayed somewhat steady since 2007, despite an 8 percent decrease in the national average.
  2. Jacksonville, Fla. – average bankcard balance: $5,115 (19.4 percent higher than the national average) – Jacksonville is also one of the 25 cities with the lowest VantageScore.
  3. Atlanta, Ga. – average bankcard balance: $4,960 (15.8 percent higher than the national average) – Despite overall decreases in bankcard balances (decrease of 3.44 percent from 2009) overall utilization of available credit is up (increase of nearly 6 percent from 2007) due to the decrease in the number of bank cards.
  4. Honolulu, Hawaii – average bankcard balance:  $4,939 (15.3 percent higher than the national average) – Honolulu was one of the few cities in the top 25 that had the highest bankcard balances with an increase in the number of bank cards from 2009 to 2010.
  5. Dallas-Fort Worth – average bankcard balance: $4,936 (15.2 percent higher than the national average) – Dallas is one of the cities with the lowest VantageScore in the country.

Twenty-five cities with the most bankcard debt in December:

 
MSA 2010

Bankcard

Balances

MSA 2010

Bankcard

Balances

 
1.San Antonio, Texas $5,177   13.Denver, Colo. $4,608  
2.Jacksonville, Fla. $5,115   14.Tallahassee, Fla. $4,605  
3.Atlanta, Ga. $4,960   15.Colorado Springs, Colo. $4,601  
4.Honolulu, Hawaii $4,939   16.Las Vegas, Nev. $4,599  
5.Dallas, Texas $4,936   17.Washington, D.C. $4,598  
6.Norfolk, Va. $4,925   18.Augusta, Ga. $4,575  
7.Seattle, Wash. $4,877   19.Reno, Nev. $4,575  
8.Austin, Texas $4,791   20.Spokane, Wash. $4,572  
9.Richmond, Va. $4,771   21.Savannah, Ga. $4,570  
10.San Diego, Calif. $4,673   22.Phoenix, Ariz. $4,559  
11.Baltimore, Md. $4,645   23.Miami, Fla. $4,555  
12.Columbus, Ohio $4,361   24.Montgomery, Ala. $4,532  
      25.Orlando, Fla. $4,525  
 
         

Sweet added, “A bit of good news is that Americans did reduce their December credit card debt by more than 4 percent when compared to 2009 data.”

To help consumers avoid any future holiday debt “hangovers” and take proactive steps to improve their credit and use it wisely, Sweet offers the following tips:

  1. Assess your overall financial situation. Before you do anything else, it is important to examine your entire financial situation, including your monthly budget and your short- and long-term financial goals.  Make a list of all of your debts, payment due dates, minimum payment amounts, interest rates and the timeframe in which you would like to pay down your debt.  Don’t forget to consider the other financial goals you may wish to accomplish.  
  2. Select a payment strategy that works for you. Consider paying down the credit cards with the highest interest rates first. If that seems too daunting, try paying down your smallest balance first so you can see your progress toward eliminating your bills right away. Pay more than the minimum payments, if you can, but most importantly, always pay on time. If you need additional help managing your debt, you might consider reaching out to an accredited credit counselor such as a member of the National Foundation for Credit Counseling (http://www.nfcc.org/).
  3. Use tax returns and holiday bonuses wisely. Holiday bonuses and tax returns are two larger lump sums of money that can be used to make a dent in debt, if used wisely. Make sure you are taking full advantage of extra income by putting it toward credit card debt or using it to save for next year’s holiday expenses. Don’t look at these things as free money to spend; rather, use them to pay down debt and boost your credit score to help meet your goals.  
  4. Know what you want to buy and the best time to buy it. Write down all of the people you need to buy for and start listing ideas for potential gifts. Have an idea of what you want to buy well in advance of the holidays and keep an eye out for those gifts over the course of the year. Carefully review your favorite stores’ weekly ads or use a service such as PriceGrabber.com®, which allows you to compare prices on thousands of items including electronics, furniture, books, movies and even groceries to help you get the best prices. Take the time to research the best times to buy big-ticket items. For instance, bicycles and sports gear often go on sale in January and February, while big home appliances can usually be found at discounted rates during September and October. Knowing what you want to buy will give you plenty of time to take advantage of sales and avoid marked up prices as the holidays near.  
  5. Check your credit score so you have a benchmark for improvement. Check your credit report and purchase a credit score so you understand the baseline of where you stand and how your credit may have been impacted by your holiday spending.  During times of high activity on your credit accounts, it is also especially important to make sure that your credit report is accurate.  Then, after you have had time to achieve your goals and begin paying off your debt, get another score to see where you fall in the range of risk that has changed once you have paid down your debt.  

To learn more about how to proactively manage debt and build a positive credit history, consumers can visit www.livecreditsmart.com, where on Tuesday, March 8. 2011 at 12 p.m. Pacific Time/3 p.m. Eastern, consumers can join the live Ask Experian Town Hall where Maxine Sweet will be available to answer questions and provide additional helpful tips. Consumers can submit questions in advance via Facebook or using #AskExperian on Twitter.

Methodology

The data for this research is a statistically relevant sampling of Experian’s File One(SM) consumer credit database. Credit files analyzed had all personal identification information removed. Experian’s credit study score averages are based on VantageScore.

About VantageScore

VantageScore uses both a number and a letter grade (A, B, C, D or F). VantageScore is the credit industry’s first credit rating scale, developed jointly by Experian, Equifax and TransUnion. With VantageScore, consumer scores fall within a range of 501 to 990, with higher scores representing a lower likelihood of risk.

VantageScore leverages the collective experience of industry-leading experts on credit data, credit risk modeling and analytics. The nation’s three major credit reporting companies (CRCs) Equifax, Experian and TransUnion worked together to develop a generic credit scoring model that is regularly revalidated. VantageScore marks the first time that the three companies joined forces to produce a model that scores consumers consistently across all three companies.

By utilizing cutting-edge, patent-pending analytic techniques, VantageScore provides lenders and consumers with a highly consistent, more predictive score that is easy to understand and apply. For more info: www.vantagescore.com

About Experian

Experian is the leading global information services company, providing data and analytical tools to clients in more than 90 countries. The company helps businesses to manage credit risk, prevent fraud, target marketing offers and automate decision making. Experian also helps individuals to check their credit report and credit score and protect against identity theft.

For more information, visit www.experian.com.

Experian plc is listed on the London Stock Exchange (EXPN) and is a constituent of the FTSE 100 index. Total revenue for the year ended March 31, 2010, was $3.9 billion.

Experian employs approximately 15,000 people in 40 countries and has its corporate headquarters in Dublin, Ireland, with operational headquarters in Nottingham, UK; Costa Mesa, California; and São Paulo, Brazil.

For more information, visit www.experianplc.com.

Experian and the Experian marks used herein are service marks or registered trademarks of Experian Information Solutions, Inc. Other product and company names mentioned herein are the property of their respective owners.

VantageScore® is owned by VantageScore Solutions, LLC.