Unless you have a workshop full of elves, you’re probably buying your gifts ... again. The National Retail Federation estimates that Americans will spend just over $1,000 this holiday season.
If you're buying, you're probably using a card. And if you're using your card, you're probably overusing your card. According to MagnifyMoney’s post-holiday survey, 68 percent of shoppers last year said their holiday debt came from their credit cards, with an average Christmastime toll of $1,054.
Credit card debt is obviously no seasonal malady. For credit card holders making between $30,000 and $50,000 annually, 51 percent are likely to have carried a balance in the last 12 months, says Ted Rossman, an industry analyst for CreditCards.com. But this doesn’t mean you should never use a credit card. “Anytime that you can pay the bill in full, I think it's a good idea to use a card," says Rossman. "The reason is that there are great reward opportunities and better consumer protections on credit cards than debit cards.”
So assuming you own a credit card-and assuming Santa won’t be supplying your home with presents this year-here are some reminders on how to spend responsibly this holiday season.
1) Only use a card when you can “pay in full”
This might seem like an obvious one, but it’s one that gets a lot of folks into a lot of trouble. Let’s say you made a charge today, that your statement is December 1 through 31, that your bill shows up in early January, and that you then have a few weeks of grace period to pay. So if you made a purchase today, you wouldn’t start owing interest until around February 1. “That doesn't necessarily mean you have to literally have those funds today,” says Rossman. Only that you're able pay it within that month's grace period and avoid interest. Again, this seems fairly obvious.
But if you can’t pay on time, that’s when a credit card can really screw you. “We see that the average credit card rate is around 17 percent, and that’s on the low end,” observes Rossman. "The median's more like 21 percent and the high end is more like 25 percent." That’s just for a general credit card. And then there are those “store cards” . . .
2) Steer clear of “store cards”
This will most likely happen sometime during the holiday season: you will go to checkout, a cashier will ask, “would you like to save 10 percent on today’s purchase?” and then he will point to a store credit card. What you should say: “no!”
“A store card is a very risky choice if you're ever going to carry a balance,” says Rossman. The risk comes with store cards’ high interest rates – on average six points higher than a general-purpose card. The reason for such high interest is that these cards require lower thresholds for credit quality and are thus easier to attain (and so more attractive to consumers).
But the deal is mostly a trap, as saving 10 percent on a purchase is immediately undone should you carry any balance. Stick to a general card, like the Capital One Venture or Chase Sapphire Reserve, advises Rossman. These cards have plenty of perks, and, provided you can always pay in full, are going to give you more bang for your buck than that measly 10 percent discount. How do you take advantage of those perks?
3) Play the points game
“If you can pay your credit card bills in full, then use rewards to your advantage,” says Rossman. That means signing up for new card deals with lucrative sign-up bonuses, like hundreds of dollars’ worth of free travel. Some may require spending a few thousand dollars in the first few months, though. But you can take advantage of your holiday shopping and score $750 in free travel from cards like the Capital One Venture or Chase Sapphire Reserve. But, again, you need the money first in order to play.
4) In trouble? Get a balance transfer card
Cards like Chase Slate, American Express EveryDay, and BankAmericard can be really useful for getting out of debt at the lowest possible cost, says Rossman. They work by transferring debt between credit cards, and in the case of the above, without an upfront charge and with 15 months of zero percent interest. Sound too good to be true? Forty-nine percent of U.S. adults also think so, according CreditCards.com, but those people would be wrong, says Rossman. "With most credit cards charging 17 percent to 25 percent interest rates, a balance transfer could save you hundreds or even thousands of dollars, depending on your interest rate and how much you owe.” But make sure to avoid putting new purchases on the card. That means, if you’re already in debt now, think about postponing the holiday presents. And this suggestion should sound like another obvious one . . .
5) Just save money
“I think Americans by and large are notoriously bad at saving,” notes Rossman. “You see all these stats – that the average savings rate is very low (in the single digits) and that there’s a sizable percentage (around 40 percent) who don’t have any savings at all.” Having little savings and owning a credit card can be a real recipe for disaster, as it often only takes one excess payment (an unexpected doctor's bill or a car repair, for instance), for your bill to become unpayable. And then those high interest rates rear their ugly heads.
Try shopping online by clicking through a credit card issuer’s shopping portal, suggests Rossman. “You can also use cash back sites like ebates.com or an airline’s shopping portal.”
Or just buy less. Because, let’s be honest, you’re probably overspending during the holidays anyway.
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