Financial Blog

Personal Finance

 

America’s debt is growing. The Federal Reserve estimates our total credit card debt has grown to $747 billion that’s the highest in over six years.

 

This holiday season that debt is more than likely to grow. As a matter of fact, the average American is likely to rack-up over $1000 in credit card debt during the season of giving.

 

All that gift giving can leave a pretty heavy debt burden for the New Year.

 

Before you pull out the plastic, consider the real cost of credit card debt and create a plan to avoid it entirely.

The Real Cost of Credit Card Debt

Interest rates on cards are expensive. The average interest rate on credit cards is close to 14%. And depending upon your credit score and the type you use, the interest rate can reach as high as 25.49% APR regardless of credit score.

Convenience has a price.

Sure, credit cards are convenient in the short-term, but they can become very expensive long-term. For instance, if you borrow $1,000 this holiday season at 14% and make minimum payments, your debt will end up costing $732.15 in 109 months, that a total of $1732.15! You’ve paid almost the equivalent of your borrowed money!  It gets worse for credit cards like Macy’s with interest rates of 25%, way worse. Let’s say you took 30 years to pay off that $1000 debt for the holiday the result would be $9798.48.

4 Tips to Keep Your Holiday Credit Debt Under Control.

All that said, sometimes we all need a little help, so here are 4 tips to keep your holiday credit debt under control.

1. Find low- or no-interest intro offers

Look for cards that have 0% intro APR on purchases for 12 months and 0% intro APR on balance transfers for 21 months. (After that, the variable APR will be 15.99% - 25.99%.) If you can pay your bill in full in the first billing cycle do it! And if you can’t, make a goal to get your credit card paid before the promotional offer ends.  

2. Dedicate One Card for Holiday Spending

Consider using a separate card just for your holiday shopping. Use your low interest or new card just for the extra holiday expenses. And set a budget and set a text alert to let you know when you make a purchase and when you’re reaching your limit.



3.  Don’t let your credit card rewards go to waste.

 

There is no better time to take advantage of credit card rewards than during the holidays. Make sure to look up the rewards you have available. Cards companies like Discover will give you another $5 for redeeming your Cashback bonus reward for a gift card. Turning a $20 gift card into $25 one. Depending on your cash back bonuses $5 can add up quickly.

 

And if you’re planning to donate to charities, cards like Discover allow you to make a charitable donation with your Cashback Bonus. Check your bonuses you may be able to get a real value that adds up.

4. Save Money by Making More than One Payment a Month

Credit card companies will let me make more than one payment a month. This strategy works well because interest is calculated from the account’s average daily balance. You’ll pay less over time if you send in money when you have it rather than waiting until you receive a bill. For example, you find an extra $25 dollars in an old coach pocket go online and put that $25 on your credit card. It might not seem like much but over time you’ll pay off your debt faster and save.

The holidays are supposed to be about celebrating relationships. Getting into debt to strengthen bonds can be a rocky road. If you can’t avoid it, dedicate one low interest or no interest card to holiday spending, take advantage of reward programs and pay down your debt in multiple payments as quickly as possible.