Although those with credit card debt are outspending those without in a majority of luxury spending categories, most are not willing to cut expenses in those categories. A wake-up call: You’re essentially paying 18 percent more for those items by charging them.
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If you have credit card debt, it may be time to scale back what you spend on luxury purchases.
But we’re not talking about doing without small luxuries like your morning coffee or an afternoon snack – things like your car loan or lease, leisure travel, dining and more can make a bigger difference.
A new CreditCards.com poll shows U.S. consumers who have credit card debt are outspending debt-free households in seven of nine discretionary spending categories (see chart). However, few are willing to cut back on any of their luxury purchases.
In fact, 18 percent of Americans who have credit card debt are unwilling to trim expenses in nine categories, including dining out, leisure travel and clothing (see chart). This despite the fact that the average credit card APR is nearly 18 percent.
“The average U.S. household spends thousands of dollars a year on nonessentials. If you’re charging these luxuries and carrying a balance, you’re spending an average of about 18 percent more for the privilege,” said Ted Rossman, industry analyst at CreditCards.com. “Would you have chosen the same car, plane ticket or restaurant if the price were 18 percent higher?”
Our luxury spending poll also found:
- Many can live without dining out. Dining and takeout is the category all respondents – in debt or not – are most willing to cut in half. Still, less than half of those with credit card debt (48 percent) would trim their dining budgets, which average $2,186 per year.
- But vacations are a big budget item many won’t budge on. The average household with card debt spends $2,211 per year on leisure travel. But only 3 in 10 of those respondents would be willing to cut their travel spending in half.
- Cars, haircuts and cellphone plans are the biggest must-haves. The three categories people in debt were least willing to cut in half are personal care and beauty (23 percent), cellphone services and upgrades (25 percent) and car loans or leases (26 percent).
- Cut my streaming? You’re dreaming. Only 39 percent of respondents with debt would be willing to cut back on subscriptions services such as Netflix, Spotify and Xbox Live. However, at $1,198 per year, it’s the second-least-costly luxury expense among this group.
The survey of 2,482 U.S. adults was conducted online between June 19-21, 2019. See survey methodology
See related: The best balance transfer credit cards
Why we aren’t willing to cut luxury spending – even when we’re in debt
Margaret J. King, director for The Center for Cultural Studies & Analysis, studies how people think and make decisions on social questions.
King said spending on dining out, for example, is a social cost: It facilitates getting together with others, with eating as the centerpiece. The return on spending isn’t a matter of accounting or budgeting, it’s an expenditure that has cultural returns, King noted.
In addition, King said, Americans are great believers in their future ability to earn more and make a better income.
“That’s why we don’t mind being in debt: We assume our future returns will exceed the debt we rack up in the present,” she said. “Even when our income is uneven or worse, decreasing, our faith in future income-making potential outweighs the evidence in front of our eyes, and we keep on in our present and past habits of money management.”
How to trim your budget on nonessentials
Take a look at experts’ solutions that can help save you money without feeling like you’ve taken a big hit.
Take an Uber or the bus
Chartered Accountant Rishit Shah said it’s simple to reduce car debt these days with options like Uber and Lyft.
He said you can easily calculate your daily commute and on the basis of that, figure out the average amount you spend per year on commuting.
If that amount is more than the $5,096 people in debt spend per year on car loans or leases, you may consider a ride service. The rides can get cheaper when you pool with others, which can significantly reduce the amount you spend, he said.
You can also opt for state public transportation services to reduce your expenses — and ultimately reduce your debt.
Average annual expenses per household
|Clothing, shoes and accessories||$1,892||$1,515|
Host your friends for dinner instead of going out
You can minimize any credit card expenses with careful planning, according to Mr. SR, writer for the personal finance site Semi-Retire Plan. Consider the “why” behind your purchases and see if you can find an alternative solution to the situation ahead of time, he suggested.
Mr. SR said he and his wife used to dine out on Friday nights because they were tired from working all week. But lately, they’ve started buying frozen meals and eating in on Fridays.
“These are still delicious and easy for us to enjoy, but they are much less expensive than if we went to a restaurant,” Mr. SR said.
Another reason you might go out to eat is to meet up with friends — instead, consider having a dinner party and making it a pot luck, he said.
Dining and takeout is something a lot of people find it hard to give up, Shah said, but if you make your own meals three days a week it’s a good start.
Ditch cable in favor of antenna, low-cost streaming
Samuel Cook is an editor and writer at Flixed, a service designed to help consumers reduce their entertainment streaming costs.
Many consumers may be able to cut their annual subscription entertainment costs in half or more by ditching cable TV, or through a more selective approach to their streaming services, Cook said.
For example, you can purchase a digital over-the-air TV antenna to pick up a few dozen channels, including local broadcast networks like CBS, NBC, FOX and ABC.
“That comes with the one-time cost for equipment, which can be less than $50, and no annual fees — plus, you can combine that with low-cost live TV streaming services like Sling TV ($25 per month) or Philo ($20 per month),” Cook said.
And if you still want something like Netflix (a basic plan costs $8.99 per month), hold onto the service, he added.
Cook said this approach would mean spending less than $400 per year on subscription services versus the current average of $1,198 for people with credit card debt.
“Those who still want music options may want to consider ad-supported options, like Pandora, to reduce costs on music, or incorporate more use of YouTube as a free option,” Cook said.
There’s some give and take, but consumers can easily save money thanks to the large and growing number of streaming options.
See related: Will 2019 be the year you finally get out of debt?
Percentage of respondents willing to cut spending by 50%
|Clothing, shoes and accessories||35%||31%|
Keep your eye on the prize
If you really think about it, cutting back on some expensive discretionary items might just be the ticket to reducing your debt.
And Rossman noted it’s not necessarily a matter of going without, it’s about being an educated consumer and spending less on things you’ll still enjoy.
“For example, cutting a monthly expense is especially valuable because it comes up again and again, so saving $10 on a monthly bill is 12 times as valuable as skipping a $10 expense one time,” he said.
If your card debt is mounting and you need a plan to knock it out, examine your biggest expenses and think of alternatives. You could save cash for a used car instead of getting a loan (and paying a high monthly note) for a new car. Instead of dining out multiple times per week, make it a once-in-a-while treat.
If you’re an avid traveler, consider an occasional “staycation” or short road trips to get away instead of flying somewhere and booking costly accommodations.
Watching your debt disappear quickly might encourage you to continue on your path until you are completely out of debt. And once you’re debt-free, you can focus on things like saving and investing and get on the road to financial independence.
CreditCards.com commissioned YouGov Plc to conduct the survey. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,482 adults. Fieldwork was undertaken on June 19-21, 2019. The survey was carried out online and meets rigorous quality standards. It employed a non-probability-based sample using both quotas upfront during collection and then a weighting scheme on the back end designed and proven to provide nationally representative results.