Avoid holiday-related credit card debt
Looked at your calendar lately? The Christmas holiday is nearly upon us. And, as many Americans know, the arrival of Christmas means the holiday shopping season is about to kick into high gear. The mad rush to get something special for everyone on your list can be taxing on your energy -- and also on your credit card.
 If you are one of the many American shoppers who plans to charge presents on your plastic, your stocking might have little room left for goodies when the credit card statements showing outstanding balances arrive.
Naughty consumers aren't the only ones who can expect a forecast calling for mounds of credit card debt this winter. Unfortunately, nice consumers can just as easily get in over their heads when it comes to credit cards. After all, the Federal Reserve Board recently announced that U.S. consumer debt has reached a record $2.17 trillion. For the first time ever, average Americans owe more money than they earn.
Credit card spending is at least partially to blame. According to ABC News, while the average family's income rose 9 percent over the past decade, credit card debt soared a staggering 81 percent.
But as a smart shopper, there are steps you can take to prevent the holidays from leaving you with a pile of credit card debt:
- Before you start shopping, know the interest rates on your credit card or credit cards, as well as the outstanding balances on each piece of plastic.
- When tackling existing debt, pay off credit card balances with higher interest rates first. By attacking your steepest APRs right off the bat, you will incur less in interest expenses over the long term.
- Send in more than the minimum credit card payment each month. While a minimum payment will keep you from having to pay penalty charges, interest will continue to build on the remainder of your credit card balance. The more you are able to pay up front, the less your debt can grow.
- Be aware of credit card accounts that use "universal default" -- which can result in an APR increase if you pay a bill late on another credit card account, or even a utility or other bill. If you have such a clause in your credit card's contract, be extra careful about keeping up with all your bills.
- Ask your credit card issuer to lower your interest rate. Especially if you have been a good customer, the credit card company may be willing to cut your APR.
- Work to hold your debt-to-income ratio at 36 percent or less. You can calculate this ratio yourself by dividing your total monthly debt obligations by your total monthly income. If the result is above 36 percent, work to spend less on your credit card and try to make a dent in any debt you already have.
- Order a free copy of your credit report each year, and carefully look it over for any errors. The U.S. General Accounting Office reports that 70 percent of credit reports have some type of mistake. Since these mistakes can cost you in the form of a lower credit score (which can result in higher interest payments and refusals for credit), it makes sense to get any credit report errors fixed by contacting the creditor that reported the incorrect information.
If you are one of the responsible consumers users who is careful with credit, you can apply online for a cash back credit card. That way, your generous holiday spending will earn you something in return.
Published: December 6, 2006
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