While retailers may be celebrating the surge in spending with the start of the holiday season, consumers will likely be a little less cheery when they get their credit cards bills.
Shopping season kicked off Black Friday, the day after Thanksgiving, with an estimated $52.4 billion in spending, with the average consumer buying about $398.62 that day, up from $365.34 in 2010, according to the National Retail Federation. A record 226 million shoppers hit the stores that day, up from 212 million last year, the association reported. Cyber Monday’s online shopping day Nov. 28 was expected to draw an estimated 122 million more shoppers, according to a shop.org survey, and drew at least $1 billion in sales, according to early reports.
With the surge in spending, consumers can expect to face a surge in financial planning needs as the holiday season winds down and larger credit card bills await payment. Many credit unions, like West-Aircomm Federal Credit Union ($176.9M, Beaver, PA), are promoting their holiday loans, short-term, unsecured loans for lower rates than most credit cards, as ways to help pay for presents without getting into financial trouble.
West-Aircomm FCU offers members a $2,500 holiday loan special, with an 18-month term and an 2.99% APR, and is promoting it as service to members, who they say they are “beholden” to. The credit union has been offering the loan for about five years now, drawing a total of about $2 million in the loans, which CEO Ray Brunner says has very low delinquency rates. So far this year, 80 members have applied for West-Aircomm’s holiday loan, a total of $120,000 as of November 28. “We wanted to help our members out – we know times are tough,” Brunner says. “It’s a win-win situation.”
"Our members do like these types of loans," Brunner says. "We wanted to make it a smaller loan so they could pay it back quickly and so more people can qualify."
Other examples of credit unions offering holiday loans are: Postal Employees Credit Union ($41.4M, Trenton, NJ), which offers a $1,000 loan to the first 500 members that apply and qualify, with only proof of income needed; Parkside Credit Union’s ($71.9M, Livonia, MI) loan for up to $1,000 for as low as 8% APR; and Boston Firefighters Credit Union ($172.2M, Dorchester, MA), which is offering a 5.0% APR to its members who “need some extra cash to get that perfect holiday gift.”
Like West-Aircomm, several credit unions across the U.S. have already welcomed demand for holiday loans. Montana First Credit Union ($62.3M, Missoula, MT) held a Black Wednesday deal on November 23, in which about 100 members lined up outside by 5 a.m. that morning, with some even camping out. That day, Montana First CU secured more than 125 loans for more than $2 million within four hours, says Tyler Disburg, assistant vice president. And Visions Federal Credit Union ($2.7B, Endicott, NY) offered a holiday from Black Friday through Cyber Monday, drawing about $10 million of the loans on Black Friday alone, according to netbanker.com.
AEA Federal Credit Union ($217.6M, Yuma, AZ) is connecting a holiday promotion with its auto refinancing, encouraging members to flip their auto loans to AEA FCU in exchange for 1% “instant holiday cash” and two months of no payments on the loans.
NARFE Premier Federal Credit Union ($147.4M, Alexandria, VA) started offering a loan consolidation special on September 20, with rates from 5.25% APR to 9.25% APR, that has been in higher demand this month with the holidays approaching, says Marty Wye, president and CEO of NARFE. In November, the credit union secured more than $300,000 in new loans, with a total of $731,000 since the beginning of the promotion, which runs through the end of winter.
Many credit union members may also join a “Christmas club” account in which they put a bit of money away regularly, for example siphoned from their direct deposit, which they receive as a lump-sum during holiday times, according a bankrate.com article. For example, State Employees’ Credit Union’s ($23.4B, Raleigh, NC) Holiday Cash Club offers 1.0% interest on its account, in which members can deposit as much as they’d like. While the interest is modest on for many holiday clubs, the idea is to avoid the much-pricier credit card financing for holiday gifts.
“Many, many credit unions offer Christmas clubs,” says Mike Schenk, vice president of economics and statistics for the Credit Union National Association, in the article. “They're a handy way for budgeting for big outlays. For big-ticket items that occur on a regular basis, many credit unions offer these accounts so people don't have to go into shock.”
Members will likely need a bit of financial advice for budgeting how to repay holiday debt. Credit unions can remind members that they should “bite the bullet” and look at their total spending, then prioritize the debt in order of interest rates, as Coors Credit Union ($135.1M, Golden, CO) reminds its members to help them “beat the holiday hangover.” The credit union also encourages members to file their taxes, cut back on small luxuries like lattes and start planning for next year once the holidays are over.
Bankrate.com recommends that consumers make a holiday list, so they’re less likely to overspend. Also, they should keep track of charities that they donate to so that they can benefit from the donation during tax time. Credit unions can offer tips on how to host holiday parties on a budget, by making their invitations or decorating more simply.
Finall, it’s an ideal time to tell members to beware of identity theft and fraud by never giving out personal information on the phone, being on guard for pocket pickers and watching cashiers closely, and avoiding charity scams. Online and telephone frauds are on the rise, as email scams are becoming more sophisticated and more credit union members are reporting receiving phony calls for money from alleged family members.