By Christopher Cervantes, RFP

IN the aftermath of unprecedented global disruptions, revenge spending has emerged as a conspicuous consumer behavior, allowing individuals to seek solace in material indulgence. However, the surge in revenge spending, often accompanied by a tendency to overspend, has raised concerns about the escalation of household debt.

Many are playing the card of “emotional compensation” as a coping mechanism, offering a brief respite from stress and emotional challenges brought by the pandemic. The thing is, we are no longer in the pandemic, but household debts are continuing to escalate at an alarming rate like a spring tide. This is not an isolated case for the Filipinos. Just two months ago, Wall Street Breakfast: Put it On Plastic discussed the $1-trillion US credit card debt milestone for the Americans.

In the Philippines, it is expected that card payments will grow by 10.1 percent to reach P2.5 trillion as forecasted by GlobalData. Credit card payment is now becoming more popular than debit cards for most Filipinos, but the one factor why this debt level is on a growth trajectory is because of the high inflation environment that we are experiencing. Last January, the Bangko Sentral ng Pilipinas raised the interest rate on credit cards to 3 percent per month (or 36 percent annually), up from 2 percent per month (or 24 percent annually), thereby making credit costlier.

High inflation is pushing more consumers to use credit cards for non-discretionary spending, while others may be having a harder time sacrificing their lifestyle despite the concerning increase in price of goods and services.

The statistics surrounding household debt paint a sobering picture. Across the world, households have been borrowing at an unprecedented rate. Mortgages, credit card, balances, student loans, auto loans and personal loans have all contributed to this mounting debt load. According to the data from various countries, household debt as a percentage of disposable income has been on a steady upward trajectory.

Using debts as a haven for things that we can’t afford can have profound implications for household finances. While indulging in the occasional purchases can be a source of joy and satisfaction, the unchecked pursuit of mindless spending can lead to several significant consequences.

One of the most immediate and tangible consequences of unplanned spending is the potential accumulation of debt. Individuals who overspend on credit cards or loans to fund their indulgences can find themselves struggling to manage higher balances and interest payments. As debt accumulates and repayment obligations increase, individuals can experience heightened levels of financial stress.

Overspending on nonessential items can divert resources away from more meaningful financial goals, such as saving for emergencies, education, retirement or homeownership. The pursuit of immediate gratification might come at the expense of long-term aspirations.

While this mindless spending can carry negative financial consequences, individuals can take steps to mitigate its impact on their household finances.

It’s OK to use your card and even use it for some enjoyment, but you need to set limits for purchases. Keep in mind that you need to pay this card at the end of the billing cycle. With that you must prioritize essentials such as bills, savings contributions and debt payment before allocating funds for nonessential purchases.

Practice mindfulness when making purchases. Meditation is becoming a new trend to relieve stress; this might also work in using the power of your plastic money. Ask yourself if an item that you are buying aligns with your values, needs and long-term financial goals.

It might be convenient to use your credit card but try to consider also using cash or debit cards for nonessential spending to limit the temptation to overspend. Explore alternative ways to celebrate and enjoy life that do not solely rely on material possessions. Meaningful experiences often provide longer-lasting happiness.

The rising trend of household debts is a complex issue that requires attention from all of us, individuals, governments, financial institutions and society at large. As the global economy continues to evolve, finding sustainable solutions to address this concerning trend is crucial to ensuring the financial well-being of households and the stability of economies.