If volume of gift giving is a measure of Christmas spirit, Wendy Johnson certainly had lots of spirit.
The Chatsworth resident thrived on giving gifts. Two years ago, she spent about $5,000 on Christmas presents for about 40 colleagues, family members, friends and even casual acquaintances. She gave a $150 microwave oven to a colleague she hardly knew, just because the woman needed one.
"I just loved buying things for people," Johnson recalls.
There was only one problem: She couldn't really afford so much generosity on her moderate income. Her Christmas spending sprees, along with other buying frenzies the rest of the year, were financed through her 35 credit cards, and the tab on them at one point reached $42,000. Increasingly hard pressed to pay, she considered filing for personal bankruptcy but instead went to a credit counseling service that worked out a repayment schedule for her.
Johnson's case is not an isolated one. Because Christmas is the most intensive period of retail sales activity, Yuletide overspending is a significant contributor to the ballooning consumer debt burden. Personal bankruptcy filings are running at record highs, and many consumers cannot get credit to buy homes or cars, experts say. Such problems could worsen if the economy lurches into a recession, an event some economists fear could occur next year.
While Christmas shopping is not the largest of the many sources of growing consumer debt--borrowing for homes and cars is far larger--it is often the last straw, advisers say.
"For many shoppers, misuse of their credit cards this season could push them over the debt cliff, obligating them for payments they will simply be unable to handle," says Elgie Holstein, executive director of Bankcard Holders of America, a Herndon, Va., consumer group.
Debt Collection Climbs
"This whole season is the time you see lots of people getting into financial trouble," says Les Kirschbaum, president of Mid-Continent Agencies Inc. in Glenview, Ill., one of the nation's largest debt collection agencies. The company typically sees a 30% hike in its activity after Christmas.
Overall, American families are expected to spend an average of $325 on Christmas gifts this year, up 7% from last year, according to a survey by the Conference Board, a New York business research organization. For most households, that level of spending is very manageable.
But tens of thousands of families go overboard, according to Don Badders, president of the National Foundation of Consumer Credit Counselors, which oversees 410 nonprofit credit counseling centers nationwide. He says 40% of the more than 200,000 families or individuals seeking help at the centers do so in January and February--just when they start receiving Christmas-related bills.
Financial advisers blame the growth in Christmas overspending on several factors, including the strong economy.
"People feel that their income will be there to pay the debts," says Robert B. McKinley, editor-publisher of RAM Research, a Frederick, Md., firm that tracks credit card rates. "With unemployment down, it looks rosy and therefore people tend to spend freely."
Consumers with debt troubles also blame the growing materialism of the holiday season.
"Today's society is so caught up in material things . . . you get obligated to overindulge and overspend," says Susan Randolph, 30, a Los Angeles business manager who, before seeking counseling, once had nearly 20 credit cards with close to $10,000 in debt.
Experts also blame the easy accessibility of credit cards. The 107 million consumers with credit cards today hold an average of about 7.8 of them per person--including about 2.7 bank-issued cards and the remainder being retailer, gasoline or phone cards, according to David Robertson, vice president for marketing at the Nilson Report, a Santa Monica newsletter that tracks the credit card industry. That is up from about 5.8 cards per person in 1980, Robertson says.
Consumers are more likely to let credit card payments slip than home or car payments, because defaulting on card debts is not likely to result in belongings being repossessed. Failing to make mortgage or car payments, on the other hand, can eventually mean the loss of a house or car.
Some consumer advisers also blame programs by retailers and credit card marketers aimed at enticing people to spend more. Holstein of Bankcard Holders of America cites, for example, deferred payment plans in which retailers allow customers not to make payments for several months after Christmas.
"This is often misunderstood by consumers who don't understand they will be accruing hefty interest charges in the meantime," Holstein says.
He also criticizes retailers for what he calls "phony" pre-Christmas sales, in which they raise prices and then discount them to create the illusion of a sale.