10 tips to curb holiday credit card mistakes
By Jeremy M. Simon and Emily Starbuck Gerson
Holidays usually conjure happy times full of family, food and gifts. But too often that fun leaves behind serious credit card debt. Consumer credit counselors receive an onslaught of phone calls every January from shoppers who have gone overboard with their credit cards. By following these 10 tips from debt experts, you can avoid being one of those callers.
1. Decide how much you plan to spend.
2. One card may be enough.
3. Stay with a one-month payback.
4. Don't give in to guilt.
5. Leave your emergency fund alone.
6. Avoid last-minute shopping.
7. Try homemade gifts.
8. Avoid new store cards.
9. Everyone shopped for? Stop shopping.
10. Save for next year.
1. Decide how much you want to spend. This requires sitting down with your family. Credit counselors suggest using a low interest credit card. Since credit cards are loans, and the longer the length of the loan, the higher the interest costs. Make sure to include those miscellaneous costs: cards, postage, decorations and anything else that will go on your credit card over the holiday season.
2. One card may be enough. Many consumers find themselves in trouble after the holidays from using too many credit cards. Having lots of plastic is great when it comes to toys for the kids, but when it comes to what's in your wallet, one may be enough.
3. Stay with a one-month payback. Paula Boyer Kennedy, expert financial consultant and co-author of "The True Cost of Happiness: The Real Story Behind Managing Your Money," says, "Set a budget and stick to it, and don't spend more than you can pay back in one month. Think about what you're trying to accomplish. Have in mind how much money you want to spend overall and for each particular person. If you carry credit card debt, you may want to use a debit card or cash for your purchases."
4. Don't give in to guilt. Stacey Tisdale, financial journalist for CBS news and Kennedy's co-author, says, "Some of us have tendencies to try and compensate for say, not spending the time we want with our children, by overdoing it when it comes to holiday gift giving. Guilt is a huge factor in holiday spending. Ask yourself, will an expensive gift really alleviate the problem? Or make me feel better? Then spend accordingly."
5. Leave your emergency fund alone. Tisdale and Kennedy both advise shoppers to keep their paws off their emergency money. "The holidays are not an emergency; they come every year," they say.
6. Avoid last-minute shopping. A mad dash to pick up gifts can often ruin a budget.
7. Try homemade gifts. They show creativity and save money. Kennedy suggests giving presents that don't cost anything, such as "offering family members services, like fixing things around the house, planting a garden, baby-sitting or organizing their office." Tisdale enjoys other types of meaningful gifts: "Last year, I started giving only charitable gifts. My cousin was born in Brazil, so I donated money to a charity for street children in Brazil in her name. She was honored, and I got the added bonus of a tax deduction. You can also buy things to raise money for specific causes, like thebreastcancersite.com."
8. Avoid new store credit cards. Instant savings of 10 percent or more on a first purchase may entice, but counselors say that unless the purchase is really expensive, a store credit card isn't worth it. Every time you sign up for a store credit card, an inquiry goes on your credit report. Too many inquiries can lower your credit score. If you're approved, you have more credit available. Too many inquiries and too much credit subtract points from your credit score; low scores restrict your credit and hike its price. Retail store credit cards also tend to carry higher interest rates than the use-anywhere cards.
9. Everyone shopped for? Stop shopping. Once everyone on the list has been checked off, put the credit card away and stop shopping. Counselors note that the more times a consumer goes to the mall, the more items they end up buying. Go with the "out of sight, out of mind" philosophy.
10. Save for next year. Tisdale and Kennedy offer one final piece of advice: "Start saving early for next year!"
Updated: November 23, 2009
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