By John Clark
The holiday season is a time to connect with family, friends, and your credit card company. With the average American consumer spending $750 on gifts in November and December, the holidays are a prime time to rack up credit card debt.
But credit card debt isn’t inevitable. By making smart purchasing decisions, consumers can enjoy the holidays and keep debt collectors at bay.
A recent article in the Boston Globe offers shoppers several tips to reduce their debt loads during the financially dangerous holiday season.
Resist the Temptation to Embrace Cash Advances
According to the National Retail Federation, holiday sales will rise by more than four percent this year, as consumers are expected to spend a staggering $586 billion on gifts. Many shoppers will make these purchases on credit, which poses plenty of potential obstacles.
One of the most pernicious types of debt is the cash advance. According to sources, many credit card issuers mail blank checks to customers.
The catch, however, is that the interest rates on these cash advances can often run as high as 20 percent. In addition, consumers are often required to use their cards at a rapid rate in order to qualify for certain rewards.
Since credit card debt is one of the primary causes of Chapter 7 bankruptcy, consumers should be wary of taking on extra debt, even if it offers temporary benefits.
According to Jeff Somogyi, the editor of a financial services website, opening “a new credit card just to get a deal is never a good idea.” So, holiday shoppers should take a long view, and refuse to make credit card decisions based on short term gains.
Avoid Debt by Setting a Holiday Budget and Sticking to it
It’s easier said than done, but shoppers who create a shopping plan, complete with a concrete budget, are better able to stay debt-free. Impulse purchases are a leading cause of debt, so try to avoid them!
In addition, use cash instead of credit cards when possible. And resist the temptation to open new lines of credit at specific stores, even if they offer special bargains for spending certain amounts of money.
Finally, savvy shoppers often ask stores what they have available on layaway. Retailers often offer much better deals on items that failed to sell last year.
Now that the recession has come to an end, holiday shoppers may be tempted to spend more than they have in the past few years. But savvy consumers who protect their credit will be in much better shape when the new year arrives.
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