Personal Finance

28% of credit card users are still paying off last year’s holiday bill

Published

1 week ago

November 12, 2024

Business Finance News

Visa's View on the Holiday Shopping Season

Americans tend to overspend during the holiday season.

In fact, some borrowers are still paying off debt from last year’s purchases.

To that point, 28% of shoppers who used credit cards have not paid off the presents they bought for their loved ones last year, according to a holiday spending report by NerdWallet. The site polled more than 1,700 adults in September.

However, this is a slight improvement from 2023, when 31% of credit card users had still not paid off their balances from the year before.

Growth in credit card balances has also slowed, according to a separate quarterly credit industry insights report from TransUnion released on Tuesday.

Although overall credit card balances were 6.9% higher at the end of the third quarter compared to a year earlier, that’s a significant improvement from the 15% year-over-year jump from Q3 2022 to Q3 2023, TransUnion found.

The average balance per consumer now stands at $6,329, rising only 4.8% year over year — compared to an 11.2% increase the year before and 12.4% the year before that.

“People are getting comfortable with this post-pandemic life,” said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion. “As inflation has returned to more normal levels in recent months, it has also meant consumers may be less likely to rely on these credit products to make ends meet.”

Recent wage gains have also played a role, according to Paul Siegfried, TransUnion’s senior vice president and credit card business leader. Lower inflation and higher pay “may be driving consumers toward a financial equilibrium,” he said.

Still, spending between Nov. 1 and Dec. 31 is expected to increase to a record total of $979.5 billion to $989 billion, according to the National Retail Federation.

Shoppers may spend $1,778 on average, up 8% compared with last year, Deloitte’s holiday retail survey found. Most will lean on plastic: About three-quarters, 74%, of consumers plan to use credit cards to make their purchases, according to NerdWallet.

“Between buying gifts and booking peak-season travel, the holidays are an expensive time of year,” said Sara Rathner, NerdWallet’s credit cards expert. However, this time around, “shoppers are setting strict budgets and taking advantage of seasonal sales.”

How to avoid overspending

“There’s no magic wand, we just have to do the hard stuff,” Candy Valentino, author of “The 9% Edge,” recently told CNBC. Mostly that means setting a budget and tracking expenses.

Valentino recommends reallocating funds from other areas — by canceling unwanted subscriptions or negotiating down utility costs — to help make room for holiday spending.

“A few hundred dollars here and there really adds up,” she said. That “stash of cash is one way to set yourself up so you are not taking on new debt.”

How to save on what you spend

Valentino also advises consumers to start their holiday shopping now to take advantage of early deals and discounts or try pooling funds among family or friends to share the cost of holiday gifts.

Then, curb temptation by staying away from the mall and unsubscribing from emails, opting out of text alerts, turning off push notifications in retail apps and unfollowing brands on social, she said.

“It will lessen your need and desire to spend,” Valentino said.

If you’re starting out the holiday season debt-free, you’re in a “strong position” to take advantage of credit card rewards, Rathner said.

Credit cards that offer rewards like cash back or sign-on bonuses will offer a better return on your holiday spending, she said.

However, if you are planning on purchasing big-ticket items to work towards such bonuses, make sure you’re able to pay off the balance in full to avoid falling into holiday debt, Rathner said.

What to do if you have debt from last year

People walk by sale signs in the Financial District on the first day back for the New York Stock Exchange (NYSE) since the Christmas holiday on December 26, 2023 in New York City.

Spencer Platt | Getty Images

If you have credit card debt from last year, the first thing you can do is “look for ways to lower the interest you’re paying on that debt,” said NerdWallet’s Rathner.

A balance transfer card, for example, typically offers a 0% annual percentage rate for a period of time, which usually spans from months to even a year or more.

If you move your debt from a high-rate credit card, it may help you save hundreds or even thousands of dollars in interest payments, depending on how much you owe, Rather said.

“That keeps your debt from growing,” she said.

But you need to pay off the debt in full before the interest-free period ends to fully benefit, Rathner noted.

Additionally, there are a few caveats: You generally need to have good-to-excellent credit to qualify for the balance transfer and there may be fees involved. A transfer fee is typically 3% to 5% of the balance that you transfer over, Rathner said.

While you may need to budget for that detail, “the savings on the interest might be higher than the fee you would pay,” she said.

Otherwise, you may be able to consolidate into a lower interest personal loan, depending on your creditworthiness. Similarly, cardholders who keep their utilization rate — or the ratio of debt to total credit — below 30% of their available credit may benefit from a higher credit score, which paves the way to lower-cost loans and better terms.

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Personal Finance

Here’s why you should max out your health savings account

Published

11 hours ago

November 21, 2024

Business Finance News

Marco Vdm | E+ | Getty Images

Many employees have a health savings account, which offers tax incentives to save for medical expenses. However, most are still missing out on long-term HSA benefits, experts say.

Two-thirds of companies offer investment options for HSA contributions, up 60% from one year ago, according to a survey released in November by the Plan Sponsor Council of America, which polled more than 500 employers in the summer of 2024.

But only 18% of participants invest their HSA balance, down slightly from the previous year, the survey found.

That could be a “huge mistake” because HSAs are “the only triple-tax-free account in America,” said certified financial planner Ted Jenkin, founder and CEO of oXYGen Financial in Atlanta.

Health savings accounts are popular among advisors, who encourage clients to invest the funds long term rather than spending the funds on yearly medical expenses. But you need an eligible high-deductible health plan to make contributions.

Some 66% of employees picked an HSA-qualifying health plan when given the choice, according to the Plan Sponsor Council of America survey.

However, the best health insurance plan depends on your family’s expected medical expenses for the upcoming year, experts say. Typically, high-deductible plans have lower premiums but more upfront expenses.

HSAs can look like a ‘health 401(K)’

HSAs have three tax benefits. There’s an upfront deduction on contributions, tax-free growth and tax-free withdrawals for qualified medical expenses.

If you invest it wisely, it can look like a health 401(k).

Ted Jenkin

Founder and CEO of oXYGen Financial

“It’s one way to deal with the inflationary cost of health care,” said Jenkin, who is also a member of CNBC’s Financial Advisor Council. “If you invest it wisely, it can look like a health 401(k).”

A 65-year-old retiring today can expect to spend an average of $165,000 in health and medical expenses through retirement, up nearly 5% from 2023, according to a Fidelity report released in August.

That estimate doesn’t include the cost of long-term care, which can be significantly higher, depending on needs.

Why employees don’t use HSAs for long-term savings

There are a couple of reasons why most employees aren’t investing their HSA balances, according to Hattie Greenan, director of research and communications for the Plan Sponsor Council of America.

“I think there’s a lot of confusion about HSAs and [flexible spending accounts],” including how they work and how they’re different,” she said.

While both accounts offer tax benefits, your FSA balance typically must be spent yearly, whereas HSA funds can accumulate for multiple years. Plus, your HSA is portable, meaning you can take the balance when changing jobs.

However, many employees can’t afford to cover medical costs yearly while their HSA balance grows, Greenan said. “Ultimately, most participants still are using that HSA for current health care expenses.”

Personal Finance

73% of workers worry Social Security won’t be able to pay benefits

Published

11 hours ago

November 21, 2024

Business Finance News

Sporrer/Rupp | Image Source | Getty Images

Most Americans are concerned about what may happen to Social Security when its retirement trust fund crosses a projected 2033 depletion date, according to a new Bankrate survey.

Nearly three-quarters, 73%, of non-retired adults and 71% retired adults say they worry they won’t receive their benefits if the trust fund runs out. The October survey included 2,492 individuals.

Those worries loom large for older Americans who are not yet retired, according to the results. That includes 81% of working baby boomers and 82% of Gen Xers who are worried they may not receive their benefits at retirement age if the trust fund is depleted.

“Once someone’s actually staring at the prospect of the end of their full-time employment, the seriousness of the need to fund that part of their life comes into full view,” said Mark Hamrick, senior economic analyst at Bankrate.

Still, a majority of millennials and Gen Zers surveyed, at 69% and 62%, respectively, are similarly concerned.

Social Security relies on trust funds to supplement its monthly benefit payments that currently reach more than 72.5 million beneficiaries, including Supplemental Security Income beneficiaries.

While payroll taxes provide a steady stream of revenue into the program, the trust funds help to supplement benefit checks. Social Security’s actuaries project the fund the program relies on to pay retirement benefits will be depleted in 2033. At that time, an estimated 79% of those benefits will still be payable.

What financial advisors are telling clients now

Financial advisors say they frequently field questions from clients on Social Security’s future. And they often tell their clients it’s still best to wait to claim benefits, if possible.

Retirees can claim Social Security retirement benefits as early as age 62, though they take a permanent lifetime reduction. By waiting until full retirement age — generally from 66 to 67, depending on date of birth — individuals receive 100% of the benefits they’ve earned.

By delaying from full retirement age to as late as age 70, retirees stand to get an 8% annual boost to their benefits.

When talking with clients, George Gagliardi, a certified financial planner and founder of Coromandel Wealth Strategies in Lexington, Massachusetts, said he tells them Washington lawmakers are unlikely to leave Social Security’s solvency unaddressed by the trust fund depletion deadline.

But even if that does happen, it still makes sense to delay claiming Social Security benefits until 70, if possible, unless there is a critical situation where it makes sense to claim early, he said.

“My bottom line on the whole thing is, you don’t know how long you’re going to live,” Gagliardi said. “But basically, you want to bet on longevity.”

Experts say retirees need to be mindful of longevity risk — the potential that you will outlive your savings.

Social Security is “inflation indexed longevity insurance,” said CFP David Haas, owner of Cereus Financial Advisors in Franklin Lakes, New Jersey. Every year, benefits are automatically adjusted for inflation, a feature that would be difficult to match when purchasing an insurance product like an annuity.

“You really can’t get that from anywhere else,” Haas said.

Maximizing your Social Security benefits

While more than a quarter — 28% — of non-retired adults overall expect to be “very” reliant on Social Security in retirement, older individuals expect to be more dependent on the program, according to Bankrate. The survey found 69% of non-retired baby boomers and 56% of non-retired Gen Xers expect to rely on the program.

To avoid relying on Social Security for the bulk of your income in retirement, you need to save earlier and for longer, Haas said.

“You need to compound your savings over a longer period, and then you’ll be flexible,” Haas said.

To be sure, shoring up a long-term nest egg is not a top-ranked concern for many Americans now as many face cost-of-living challenges. A separate election Bankrate survey found the top three economic concerns now are inflation, health care costs and housing affordability.

Personal Finance

How Trump’s win was helped in part by young men’s financial struggles

Published

15 hours ago

November 21, 2024

Business Finance News

Voters stand in line at a local polling station in Washington, DC, on November 5, 2024. Americans cast their ballots in the presidential race between Republican nominee former President Donald Trump and Democratic nominee Vice President Kamala Harris, as well as multiple state elections that determine the balance of power in Congress. (Photo by Nicolas Economou/NurPhoto via Getty Images)

Nicolas Economou | Nurphoto | Getty Images

Going into election day, Americans were sharply divided. But the gender gap was among the most glaring splits, with more women backing Vice President Kamala Harris and a majority of men supporting President-elect Donald Trump.

Women favored Harris by an 8-point margin, with the vice president securing 53% support compared to Trump’s 45%. Men backed Trump by a 13-point margin, with 55% favoring Trump and 42% backing Harris — resulting in a 21-point gender divide, according to NBC News exit polls.

Trump gained massive support among men on economic issues, specifically, including Hispanic and Black voters who were feeling particularly pessimistic. Inflation was the top concern among voters overall, followed by the current state of the economy.

A factor that drove young men to the polls may have been perceived economic disparities, according to experts, which ultimately helped Trump win on Election Day.

“Men feel like there’s no pathway for economic mobility for them,” said Julia Pollak, chief economist at ZipRecruiter.

‘That is a huge, huge gap’

There is a growing disillusionment taking hold.

Men are steadily dropping out of the workforce, especially those between the ages 25 to 54, which are considered their prime working years.

A study by the Pew Research Center found that men who are not college-educated leave the workforce at higher rates than men who are. At the same time, fewer younger men have been enrolling in college over the past decade.

In 1995, both young men and women equally were likely to hold a bachelor’s degree, at 25%. Today, 47% of women of ages 25 to 34 in the U.S. have a bachelor’s degree, compared with 37% of men their age, also according to Pew.

“That is a huge, huge gap,” Pollak said.

Schools often tout a four-year degree as the ideal scenario. And in many areas, vocational programs and other alternative pathways “aren’t as widespread” as they used to be, Pollak said.

At the same time, some traditional blue-collar jobs that used to employ more non-college educated men declined due to automation and globalization, leading to job displacement and uncertainty about future employment prospects, experts say.

Altogether, you have a group who feel like they’re “being left behind,” Pollak said.

Brett House, an economics professor at Columbia Business School, agreed: “The great concern is that we are developing a pool of young men that are neither developing the additional skills [nor] education necessary to participate fully in the labor force,” he said — particularly in “former manufacturing industrial powerhouse states.”

These days, young men are more likely to be considered NEETs — neither in employment, education or in training — a cohort that has been hardest hit by globalization and the decline of manufacturing in this country, according to Richard Fry, a senior researcher at Pew.

“When you don’t get rewarded for working, you work less,” Fry recently told CNBC. “That is a basic tenet of labor economics.”

Men were more likely than women to say they believed the results of the election would impact their financial life in the short term, according to a separate survey by NEFE. Those voters largely favored Trump.

Those with less than a high school diploma and those with a two-year degree were also most likely to say their financial life will be impacted by the presidential election. NEFE polled 1,000 adults about their financial feelings in relation to the 2024 general election in October.

“It’s reasonable that many Americans were weighing their current financial well-being and prospects for the future while casting their votes this November,” said Billy Hensley, NEFE’s president and CEO. Hensley is also a member of the CNBC Global Financial Wellness Advisory Board.

Young women have ‘made huge gains’ in the workforce

Meanwhile, women have “made huge gains” in their education and careers and working as much, if not more, than their male counterparts, according to Ali Bustamante, an economist and director at the Roosevelt Institute.

Today, women are getting married and having children later, if at all, and are prioritizing their careers, Pollak said. They’re looking to the government to make that choice less difficult through universal child care and access to abortion, she said.

“There was a time when people were either mothers and wives, or spinsters who worked,” Pollak said. “Now women often are prioritizing the career person over the wife and mother.”

However, while the issue of reproductive rights became a major factor in the 2024 presidential race, it did not drive more women to vote. It also did not prove to be one of the most important issues facing the country among voters overall, exit polls showed.

“Trump’s message resonated with young men,” said Fatima Goss Graves, president of the National Women’s Law Center Action Fund. “The pain that people in this country has been feeling in terms of the economy is real.”

Still, other issues — such as paid leave, affordable housing, child care and equal pay — are also hugely important to families, she said.

“This was one election, but I think it would be a mistake to suggest that women will stop fighting in larger numbers either for reproductive freedom or the things they care about — we have work to do,” Graves said.