Christmas can be the most expensive time of the year. According to a Gallup poll, the average American household planned to spend $830 for Christmas in 2015. In 2014, the survey respondents had planned to spend $720 solely for Christmas gifts. Needless to say, as most holiday shopping occurs from Black Friday leading up to Christmas Eve, the credit card bills for many households are noticeably larger than normal in January when all the presents need to be paid for. As approximately 50% of all credit cards are currently past due, Christmas can cause many families to incur credit card debt.
In fact, consumer credit counseling agencies generally see a 25% increase in visits during the months of January and February. Credit card debt racked up during the holidays is one of the reasons for the increase. Even for those that do not seek counseling, it might take them three months to pay off the balance. With an average credit card interest rate of 20%, Christmas is more expensive than the original price at the cash register. To personally avoid going into debt this holiday season, here are a few suggestions to follow.
Pay With Cash
If going into debt is a looming concern on your mind, the best way to avoid is to use cash instead of a credit card. Studies consistently show that shoppers with credit cards spend more than cash-only consumers because they do not feel the figurative “pain” of having to physically take money out of their wallet and have enough to afford the purchase. With credit cards, it can also be easy to lose track of how much is spent, especially when the bill doesn’t arrive until a month later and Christmas feels like ancient history.
Set Spending Limits
Whether you pay with cash or credit, it is important to create a shopping budget. Paying with cash makes it easier to adhere to the limit as you can only spend as much is in your wallet, but, some credit cards also allow users to place spending caps that are lower than the actual credit limit. Shopping with an accountability partner, whether it’s your spouse or best friend, can also be a great idea if it is easy for you to go on a spending spree.
Pay the Credit Card Bill Early
You might prefer shopping with a credit card because it is safer than walking around with several hundred dollars cash in your wallet or to earn credit card rewards. Credit card companies will allow you to pay a current balance before the billing period closes without penalty. Prepaying is comparable to paying in cash because it allows you to avoid a sky-high bill in January and a good way to manage your money in real-time.
Make Purchases Throughout the Year
Nobody says you can only do your Christmas shopping between Black Friday and December 25th. While you might not be able to guess the most desirable Christmas gifts in January, there are certain gifts that are timeless and can be purchased at any time during the year. Spacing out your purchases will allow you to slowly accumulate gifts without busting your household budget in December. Of course, you will need a safe space to hide the gifts from inquisitive family members and remembering what you purchased for each person. Writing down each purchase on a list can help you track your purchases and let you know who still needs a gift.
Shop the Sales
Black Friday is the official kickoff for the Christmas shopping season and has the reputation as being a day for the best shopping deals. While there are some great Black Friday deals, it’s also possible to find comparable deals during the year and during the month of December. Finding the best deal can take some work as you need to know the regular retail price to compare to the advertised sale price. By comparing the prices of physical retailers and online retailers, you can find the best deal.
Downsize Christmas Shopping
If you are on a small budget, another option is to simply have a smaller Christmas. This might mean buying fewer gifts for the family or extended relatives and friends. One gift-giving idea is to draw names and you only buy gifts for only one family member or friend and set a spending limit so that there is no pressure to impress with lavish gifts.
Use Credit Card Rewards
Credit card rewards can help reduce the cost of holiday shopping and travel expenses. The best cash back credit cards can reimburse you 1% to 2% depending on the card and other cash back credit cards will reward 5% cash back on holiday shopping up to $1500 during the 4th quarter. For example, a 5% rewards rate on $830 in holiday shopping equals $41 in rewards. A travel rewards card can also help you save money on airfare and lodging if you will be leaving town for Thanksgiving or Christmas break. And, holiday shopping can also help you earn a credit card sign-up bonus that is even more valuable than normal purchase rewards.
Purchase rewards are one benefit that credit cards have over cash and debit cards. But, credit cards also make it easier to overspend and forget payments. Spending more than originally planned can offset any purchase reward and not paying a bill on-time will definitely cancel out any rewards earned. Plus, if you do not make the minimum payment, most credit card companies will take away any rewards originally distributed for that billing cycle.
Cutting back on spending during the holiday season can be challenging at times as it is a time visit family and friends and there is a strong tradition of gift giving. Shopping and traveling cost money and December is the most expensive months for most households. By planning for the holidays through the year, searching for good deals before and during the shopping season, and sticking to a budget, you too can avoid credit card debt this holiday season.
Author: Jeff Gitlen
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