If the smell of pumpkin spice evokes fears of future holiday bills, you’re not alone. The latest Seasonal Financial Distress Deep Dive from LendingClub, conducted in partnership with PYMNTS Intelligence, found that 36% of consumers feel the most financial distress in December. They attribute this stress primarily to “events and celebrations,” with 47% of respondents citing such merriment as the top reason for their money worries during the holiday season.
“Nearly half of all consumers say their financial standing fluctuates seasonally and cite non-essential spending as a main driver,” LendingClub money expert Alia Dudum explained. “December is the most cited month for experiencing financial distress for 36% of consumers.”
She added, “While holiday spending is considered a nonessential expense, many feel the pressure to splurge on events and celebrations and step out of their monthly budget parameters.”
Financial Distress Throughout the Year
Not surprisingly, November and January also create distress, with 19% and 15% of consumers saying they feel a pinch those months. In the beginning of the year, holiday bills pile up, making it harder to meet everyday expenses. Plus, energy costs rise as the weather cools. That’s why 18% of respondents cited “changes in utility bills” as the cause for financial concern in the first quarter.
By the second quarter, thoughts shift to tax bills, the research showed. And, while there are ways to work with a tax accountant to reduce your tax liability — such as increasing the amount of payroll taxes withheld each paycheck — Dudum said a long-term view could be more beneficial.
“While 40% of consumers report tax payments in Q2 are a source of seasonal financial stress, the reality is that consumers could benefit from identifying their own peak spending months and proactively budgeting all year,” she told GOBankingRates in an exclusive email interview.
The study showed that nearly half of all consumers polled found their financial standing fluctuates seasonally. Seasonal fluctuations affected 60% of millennials, and 57% of consumers living in a larger household of four or more people.
“Whether a consumer is living paycheck to paycheck or not, seasonal fluctuations can seriously impact financial livelihood and cause individuals to feel strained,” Dudum said.
The Dangers of Living Paycheck to Paycheck — Or Just Feeling Like It
The recent LendingClub study, which evaluated various economic data plus insights from a survey of 4,218 U.S. consumers in the beginning of August 2023, found that 60% of consumers identified as living paycheck to paycheck. These figures were the same year-over-year, and also spanned all income brackets, the data showed.
Those earning less than $50,000 annually are more likely to live paycheck to paycheck, with 75% of consumers in this demographic saying they struggled with the challenge of running out of money each month. Yet, 45% of Americans polled earning $100,000 or more — previously a benchmark of a decent living wage — also said they lived paycheck to paycheck. Meanwhile, 62% of those earning between $50,000 to $100,000 said they lived paycheck to paycheck.
“The data underscores the pervasive nature of financial challenges affecting a majority of consumers,” Dudum stated in a press release. “With ongoing inflation, U.S. consumers remain resilient by adjusting their spending to service their financial obligations. However, the problem is that there is more month at the end of the money, and seasonality is affecting consumers’ financial distress.”
The Surprising Effect of Credit Card Debt
In spite of financial struggles, roughly 50% of credit card users do not believe their debt is adversely affecting their finances. “Interestingly,” Dudum said, “79% of consumers not living paycheck to paycheck believe their credit usage has no bearing on their financial stability.”
However, she pointed out, “Americans are using credit cards as a clutch instead of a tool.” In a rising interest rate environment, this can lead to more financial distress during periods of increased spending, as you strive to get ahead but struggle to make more than the minimum payments.
“Over one-third (36%) of consumers experiencing seasonal stress employ credit products, with 21% citing this as their primary coping mechanism,” Dudum said.
If this sounds like your financial situation, Dudum recommended considering a debt consolidation loan to enter the new year — or even this holiday season — in a stronger financial position.
The Benefits of a Cash Budget
To combat seasonal financial struggles, Dudum also recommended adopting a cash-only budget going into the holiday season.
“Your holiday budget should be limited to the cash you have available after paying all your monthly expenses,” she advised. “Setting and sticking to a spending limit remains the best way to make the most of the season and enter the new year free of holiday debt.”
Make a Plan Going Into the Holiday
To calculate your holiday budget — and even set aside some money now as the holidays approach — Dudum recommended downsizing household expenses, including limiting non-essential expenses.
“For instance,” she said, “groceries are essential, but buying higher-quality products at the grocery store or paying to have them delivered would be considered non-essential.”
You can also try to negotiate lower interest rates on credit card bills or shop around for lower rates on utilities, including your phone bill, oil heat, or gas.
One area you shouldn’t cut back, Dudum said, is contributing to your emergency savings account, an easy-to-access repository for cash you may need for unexpected expenses. “We know emergencies are happening more frequently and are costing more,” she said.
With the funds you free up by reducing non-essential spending, you can automate your holiday savings into a high-yield savings account. In that event, whatever you save between now and then goes further through the power of compounding interest.
“By preparing a holiday budget now you’ll be better equipped to make it through the holiday season without impacting your overall debt burden later,” Dudum said. “Knowing the fundamentals around budgeting, saving, debt management, investing, retirement planning, and more are important aspects of building financial health and being minimally impacted by seasonal swings.”
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This article originally appeared on GOBankingRates.com: New Report Shows Nearly Half of Consumers’ Finances Fluctuate Seasonally — When Are People Strapped for Cash Most?