6 ways to avoid a holiday credit hangover
Whether you're holiday shopping online or making the rounds at the mall, your credit card is most likely your trusted payment tool. But you could be falling into a lot of traps while charging away during this expensive season.
"Usually people come to see us in February after their first credit card statements come in," says Pat White, executive director of Credit Counselling Canada. "They can't believe what they did - it's a pretty common reaction."
"What happens is they're tipping over the edge before the holidays, and it's that December spending that pushes them over," says Laurie Campbell, executive director of Credit Canada.
White and Campbell list six ways your credit card could be sabotaging your bank account over the holidays:
Slip-up No. 1: Maxing out your card
or spending more than you can pay off.
If you go over your credit card limit, you face over-the-limit fees, a nasty default interest rate and a ding to your credit score. And if you're charging, charging, charging, but not paying it all off, you're just digging yourself a deep hole come January.
Do this instead: Always track how much you're spending with the help of an app or by tallying spending with receipts. Before you start holiday spending, clear your credit card balance or make as big a payment as possible to free up space. Make sure your spending matches your budget and how much you estimated for each category. Never shop without a budget.
Slip-up No. 2: Saying yes to retail
cards and store bonuses you don't need.
When you're ready to pay at the register, you could be enticed by as much as 20 per cent off your entire purchase if you open a store credit card. Resist the temptation. You're better off without another card, both experts say.
"It's very hard to say no - I get that all the time, too," Campbell says. "But I know it's a promotion and that store credit card interest rates are much higher."
This applies to other gimmicks to bump up your spending, including a plethora of store rewards points or a deal that only applies if you buy way more than what you planned.
Do this instead: Stick to your spending plan. Say no to the store credit card, especially if you're already carrying two or more cards, and ignore offers to buy more - the extra rewards are rarely worth the extra debt. Avoid Black Friday sales if you don't have specific things on your list to purchase, Campbell says.
Slip-up No. 3: Swiping away for
Trying to avoid lines, not comparison shopping or picking up items "just in case" are all culprits that add to overspending on your credit card, Campbell says.
It's easy to take shortcuts or do a rushed job on your holiday shopping when you can just swipe or tap your problems away.
Do this instead: Schedule a shopping day when it isn't hectic in the mall. Try going before Black Friday, or even take a day off work and go during the week. Don't go on an empty stomach (to avoid rushing to the food court), and don't bring your kids (which can distract you from your holiday shopping mission).
"When you're shopping at off-peak times, and you're not stressed in the mall, you won't be going to the most expensive store with the shortest lines," Campbell says. "You won't be making poor decisions."
Slip-up No. 4: Not communicating with
your partner about card usage.
You and your partner use your card to pay the utilities, cellphone bill and groceries. You've added Christmas spending to the list, too. Before you know it, you've maxed out your card or overspent more than you agreed, causing financial tension at home.
"Between spouses, you need to have really good communication with a joint card," White says. "At Christmastime, there's a lot of money moving around."
Do this instead: Communicate - even more than you're used to. Even if you've already set parameters for use of your card, you should set concrete rules for holiday expenses, too.
Decide who is buying what, for whom, at what price and how it will be paid for, White says. This will prevent credit surprises and sticker shock.
Slip-up No. 5: Not using the right
card or payment tool.
You have cash, debit cards, credit cards and a line of credit. What do you use when it's time to pay? If you aren't careful you could be:
- Racking up transaction fees for using your debit card too much.
- Paying extra interest by relying on your credit card with the highest rate.
- Leaving a low-interest line of credit untouched during an expensive time of the year.
Do this instead: Compare your payment tools and
decide which is best for certain holiday purchases. You could learn that your
line of credit has the lowest interest rate, and it would be wise to take money
from that account for spending, White says.
"You might use this as an option as long as you make sure you pay off the amount," she says.
A two- or three-month repayment time frame is OK. If you can't pay off the bill by then, though, your spending isn't manageable.
Slip-up No. 6: Burying your head in the sand in the New Year.
You splurged on presents, fancy dinners and new holiday outfits. You get your statement and instead of combing through the charges, you hide. You refuse to carve out a payment plan, and even worse, you make the minimum payment each month until the balance clears.
"Everyone does it, but at some point you have to look at the damage that's been done," White says. "If you looked at the interest rate, you'd see it's 19 to even 28 per cent. You need to know that's going to impact your balance in the next month."
Do this instead: Treat your holiday spending like a Band-Aid you need to rip off swiftly. Figure out how much debt you've incurred and how to put as much income as you can toward each payment.
Finally, treat this holiday season - or last year - as a lesson learned: remember how much you spent on various categories and be wiser with a budget and savings next Christmas, White says.
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