by Bill Hardekopf
The kids are still eating their trick-or-treat candy, and Christmas has probably not even entered their minds. But according to the National Retail Federation, nearly 40 percent of consumers had already started their Christmas shopping before Halloween.
The most wonderful time of the year has crept into October and November, but Christmas must be celebrated with a budget and a spending plan. A survey by Consumer Reports showed that 14.1 million or 6% of Americans are still paying off credit card purchases from the 2010 holiday season, up from 13.6 million in 2009.
Last year, approximately half of Americans charged at least some of their gift purchases, according to the Consumer Reports survey. Credit cards provide an easy way to buy, but they must be used with caution, especially around the holidays.
Here are ten tips to avoid holiday credit card debt:
- Start saving now. Look at what you spent last year and try to save that amount in the next two months. If you spent $500, you can save $71.50 per week for the next seven weeks and pay cash for everything you purchase, or apply that payment to your January credit card balance so you don't have to pay interest on your holiday spending. Instead of eating out, take your lunch to work or eat more meals at home from now through December. Apply that money to your Christmas purchases.
- Make a budget and then keep a record of all gift purchases and holiday expenses from postage stamps to the food for the office party. It is hard for shoppers to make a budget and easy to underestimate their spending. Last year, respondents in the survey anticipated spending an average of $457 on gifts, but really spent $556, a 22 percent increase. Of those that made a budget last year, 45 percent exceeded it.
- Change your shopping habits now before you get into the spirit of the season. If you can't afford to pay off your credit card in November, then you can't afford to add a lot more to it in December. Generosity to friends or the perfect gift for the family are not good reasons to put yourself deeper into debt. If you are one of the 14 million people still paying off purchases from last Christmas, then you can't afford shopping on a credit card this year. If you must use a credit card to pay for Christmas, make sure you can pay it off by Easter.
- The best way to stick to your budget and avoid impulse spending is to pay in cash. Pulling cash out of your wallet or purse and handing it to someone else is painful and a reminder that the less you spend, the more you can keep.
- Before making your first holiday purchase, verify the credit limit on every credit card you use. If you are unaware that your limit has been lowered, you can unknowingly exceed your credit limit. This can cause problems, including a lower credit score and a significantly higher APR.
- If you are looking for a new credit card, this may be a good time to apply. If the card has a 0% introductory rate for purchases for six or 12 months, you can use your card as a free loan for holiday spending. This is recommended only if you pay it off before the interest charges begin.
- If you carry a balance, calculate the cost of adding new charges to your credit card. This will probably serve as a wonderful deterrent to using your card. If you charge $1,000 on your credit card with an APR of 15%, and you choose to pay just $30 each month, it will take 44 months to pay off Christmas 2011 and you will pay an additional $302 in interest.
- If you are going to carry a balance, contact your issuer and ask for a lower rate. They may not be as willing to negotiate as they were several years ago, but it doesn't hurt to ask.
- Use your rewards points for holiday shopping. These can be used to buy gift cards with many retailers. You can also apply your American Express Membership Reward points to shop at Amazon.com to pay in full or for part of your purchase.
- Pay attention to partner programs. Most credit card issuers have a partner program that offers discounts or bonuses for online purchases with certain companies. The program varies by issuer, but the partners could be stores where you already shop. Discover turns $20 rewards into $25 gift cards. Citi gives an additional 1%-5% cash back when you shop at their online partners.
Bill Hardekopf is CEO of LowCards.com, a site that simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories, such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.