Consumers who said they went into debt over the holiday season racked up an average of $1,054 of debt, according to an annual survey conducted by MagnifyMoney. That’s not only an increase of 5% over last year, but we also found more shoppers put that debt on high-interest plastic.

As in previous years, most shoppers who took on holiday debt put their purchases on credit cards. But the percentage of consumers who pulled out the plastic for holiday gifts and other seasonal spending was significantly higher in 2017. When asked where the holiday debt came from, 68% of shoppers said that credit cards were responsible, up 8 percentage points from 2016. Store cards were the reason for 17% of shoppers, and 9% used a personal loan.

Nor were the amounts of debt accumulated trivial. Many consumers accumulated significant amounts of debt this season: 44% of shoppers racked up more than $1,000 in holiday debt, and 5% accumulated more than $5,000 in balances. Meanwhile, half of consumers admit it will take more than three months to pay off that spending.

Strong retail holiday sales — with a statement to match

Early indications from industry sources show that retail sales rose nearly 5% versus last year, according to a sales report by Mastercard. The MagnifyMoney survey appears to validate that finding: among shoppers surveyed who said they went into debt, the average amount spent this season exceeded 2016 spending by $51, or roughly 5%.

For most shoppers, going into debt wasn’t the plan. According to the survey, 64% of those who have holiday-related debt didn’t plan to incur it. And lack of planning, whether it’s for holiday spending or other types of debt, can lead to financial problems down the road.

Much of that spending won’t melt away anytime soon

Only half of those surveyed said that they expected to pay off their spending in three months or less. Of the remaining half, 29% said they’ll need five months or longer to pay off holiday debt, in most cases accruing additional interest.

An additional 10 percent of people who took on holiday debt said they would only make minimum payments. Assuming that shopper spent the average of $1,054, and paid a minimum payment of $25 each month, he or she would be paying down that balance until 2023. That is nearly as painful as the $500 in interest fees they would pay over that time, assuming an annual percentage rate (APR) of 15.9%. You can enter your own rates and balances to find out how much interest you’ll pay on credit card debt using the MagnifyMoney Credit Card Payoff Calculator.

Zero Percent APR Gotchas

Interestingly, nearly half of respondents indicated they’re paying less than a 10% APR on their balances. Although the survey didn’t ask the source of those low rates, some of these “rates” could be  special financing offers from store cards from retailers – a source of financing for 17% of holiday shoppers surveyed who said they took on debt this year.

The holiday season is prime time for special in-store financing offers, but once you read the fine print, they may cost much more than they help shoppers save. Many of store cards come with  deferred interest clauses, where the consumer pays no interest for a fixed period – often 6 months. If the consumer pays off those types of purchases within the period, he or she does indeed pay no interest. But after that period ends, any balance that hasn’t yet been paid in full will be charged interest retroactively, often at rates much higher than most bank-issued credit cards (APRs of 25% or greater are typical).

Less use of unconventional financing

Although more shoppers resorted to credit cards for holiday shopping this year, fewer used loans like payday or title loans – usually the most costly form of borrowing for consumers. Only 4% of shoppers said they used payday or title loans to finance holiday shopping, down from 6% in 2016. Similarly, only 2% said they used home equity for financing. Although home equity may provide more favorable borrowing terms, there may be additional fees you’ll incur, and in the worst case, your home is the ultimate collateral on these loans.

Getting back on track

By understanding where your finances are now, you’ll likely do a better job with managing your debt and spending in the future. For instance, just tracking your spending, whether or not it’s holiday-related spending, will help clarify which expenses might be able to be reduced or eliminated.

Finding out your what’s in your credit reports (available for free at AnnualCreditReport.com) will confirm there aren’t any unexpected surprises waiting for you should you consider refinancing with a lower-rate personal loan or zero percent balance transfer offer from a new or existing credit card offer.  Other tactics, like automated payment plans and budgeting, can be found in The MagnifyMoney Debt Guide e-book.

2017 Post-Holiday Debt Survey Questions

Methodology: MagnifyMoney surveyed 676 U.S. adults who reported they added debt over the holidays via Google Consumer Surveys from December 21 – 26, 2017. Percentages may not add up to 100% due to rounding.

Average debt among shoppers who said they went into debt over the holidays

2017: $1,054

2016: $1,003

If you went into debt, did you plan to go into debt this holiday season?

Yes: 36%

No: 64%

How much debt did you take on over the holidays?

$0-999: 56%

$1,000-1,999: 26%

$2,000-2,999: 9%

$3,000-3,999: 3%

$4,000-4,999: 1%

$5,000-5,999: 4%

$6,000+: 1%

Where did your holiday debt come from?

Credit cards: 68%

Store cards: 17%

Personal loan: 9%

Payday / title loan: 4%

Home equity loan: 2%

When will you pay the debt off?

1 month: 19%

2 months: 16%

3 months: 14%

4 months: 11%

5 months+: 30%

I’m only making minimum payments: 10%

Will you try to consolidate your debt or shop around for a good balance transfer rate?

Yes: 12%

No – Don’t want to deal with another bank: 27%

No – Too many traps: 20%

No – Rate is already low: 23%

No: – Don’t know enough about it: 10%

No – Wouldn’t qualify: 8%

How stressed are you about your holiday debt?

Stressed: 29%

Not Stressed: 71%

What interest rate are you paying on your debt?

Less than 10%: 49%

10-19%: 33%

20-29%: 16%

MagnifyMoney |

Have a question to ask or a story to share? Contact the MagnifyMoney team at info@magnifymoney.com

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These are the places where the most capital gains have been realized

Just a few years ago, in the aftermath of the Great Recession, Americans were constantly reading about how home ownership had let Americans down.  There was red ink everywhere: Not only had stocks lost nearly half of their value between 2007 and 2009, but home prices had declined in virtually every real estate market in the country.

That trend has long since been reversed. Last year, incomes grew an average of 4.7 percent. When adjusted for inflation, they have finally fully recovered to levels seen before the 2007-08 financial crisis. But even better, their investments have been paying off.  Stocks, as based on broad market indexes, have more than tripled in value from their 2009 lows. And in most local markets, home prices have also since recovered.

So, who’s cashing in?

MagnifyMoney analyzed five years’ worth of Internal Revenue Service (IRS) data — from 2012 to 2016 — to see where American taxpayers are getting the most return on their investments. In particular, we focused on capital gains: a tax on the sale of appreciated assets like real estate and stocks.

For the 100 largest American metros, we looked at two facets of capital gains: How much in gains, per resident, were realized; and, to get a sense of the breadth of wealth being realized and taxed, the percentage of individuals who filed federal taxes that cited a capital gain.

We ranked each metro on these metrics and weighted them evenly to create a Cashing In Score, from 0 to 100 (with 100 representing a metro that would rank first in both capital gains per resident and the percentage of returns with capital gains).

Topping the list were Fort Myers, Fla.; San Francisco; and Sarasota, also in Florida. Others in the top 10 include tech-heavy places like Seattle and Austin, Texas.

#1 Fort Myers, Fla.
Cashing In score: 98 (Scores are rounded in this list.)

By far, the place with the most cashing-in was Fort Myers, on Florida’s west coast. With a relatively small population of well-off retirees, the city and surrounding area realized nearly $103,000 in capital gains per resident, easily eclipsing other American cities. Moreover, with a capital gain appearing on nearly one in four returns over the past five years, there’s been significant activity in the region.

#2 San Francisco

Cashing In score: 94

The City by the Bay is famous for both its tight real estate market as well as Silicon Valley, and the data bear this out. Even with a significantly large population, San Francisco realized more than $76,000 in capital gains per resident, many of the realized gains likely the result of selling stocks which have greatly appreciated in value.

#3  Sarasota, Fla.

Cashing In score: 75

Sarasota has the distinction of having a higher proportion of federal tax returns with a capital gain than any other metro in the nation, including its Fort Myers neighbor to the south. The capital gains per resident, at more than $56,000, are less than those realized in Fort Myers (as well as No. 9 Miami).

#4 New York

Cashing In score: 70

The nation’s largest metro also sports large gains: more than $60,000 in capital gains per resident over the five-year period we examined. One in five returns included some sort of capital gain. And where the average price of a home in Manhattan has now exceeded $1 million, a healthy percentage of the gains realized were from real estate sales.

#5 Boston

Cashing In score: 63

Another metro with a hot real estate market, Boston realized more than $48,000 of capital gains per resident from 2012-2016, while, as in New York, 20 percent of federal filings from the Boston area included some sort of capital gain.

What is a capital gain?

According to the IRS, a capital gain can arise from a sale of stock, a private business, real estate or art. In other words, it’s the money that you earn on an investment after you sell it, less the cost of the initial investment. And while these assets are taxed at differing rates, all may be subject to federal taxes, if they are sold for more than the original purchase price.

Homes are still how most Americans typically accumulate wealth. Overall, 64 percent of American households are homeowner households, according to the most recent Census data . The median value of the primary residence of Americans still exceeds the median value of the stocks and bonds they hold outside of retirement accounts and other managed assets like annuities. And homeowners have a net worth of nearly $230,000, versus an average of about $5,000 for renters.

But housing markets are still local, which may in part explain the variance among the 100 largest metropolitan areas we examined for the most capital gains realized from 2012 to 2016.

The second-home factor

Not all home sales will result in a capital gains tax.  Currently homeowners only pay a capital gains tax on gains that exceed $250,000 ($500,000 for couples filing jointly), if it’s their primary residence.

But other property – such as vacation homes and rental properties – aren’t afforded the same protections from capital gains as a primary residence.

Thus, all the gains from these sales may be subject to capital gains tax, which may explain why we found that many of the cities that top our list s are in vacation spots like Florida and Lake Tahoe (considered part of Reno, Nev., by the Census Bureau).

Stocks still likely result in some significant realization.

It’s probably not a surprise that both New York and San Francisco are near the top of the list. Not only do both have tight residential real estate markets, but both Wall Street and Silicon Valley are homes of dozens of public corporations with thousands of employees. Stocks, whether in the form of compensation given to employees or simply bought and sold on the open market, may also result in significant capital gains.

Local economies still a factor.  

Finally, local economies may also be a factor in how much in capital gains are realized. Consider two major cities in Texas: Houston and Austin. Despite being fewer than 200 miles apart, Austin ranks significantly higher than Houston on our scale. One explanation: Austin’s tech-heavy economy continues to flourish, while the energy centric economy of Houston is slogging through a period of depressed energy prices, weighing on the residential real estate market there

Methodology

MagnifyMoney analyzed IRS Statistics of Income data for tax returns filed January 1, 2012 – December 31, 2016, covering five years of tax filings, along with U.S. Census Bureau 2016 population data to create a ‘Cashing in score.’

The 100 largest metros in the U.S. were ranked by the % of returns that declared capital gains, as well as the total capital gains reported per resident over the five year period. These rankings were weighted evenly to create the score for each metro, with 100 the highest possible score for a metro that ranks #1 for both metrics.

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