How to avoid holiday credit card debt

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Q. My credit cards have a balance and I know it will grow after Christmas. I need to pay it off and I want to make sure to stop this building of debt I do every winter. Help!
— Big spender

A. The holidays are always a very tough time to control spending. The sales begin with Black Friday and continue even past the holidays with after-Christmas sales.

But you can control your spending. It takes a little planning and a lot of self-control.

Studies have shown that people spend more money when using their credit cards, said Patricia Daquila, a certified public accountant with Lassus Wherley in New Providence.

If you want to avoid the danger of overspending, you may want to consider paying for your purchases by using either cash or a debit card, Daquila said.

This will prevent your debt from building.

“However, this takes a lot of discipline because you will need to wait until you have the cash available to pay for your purchases,” Daquila said. “This involves setting a budget which is realistic for your holiday spending.”

Daquila said one strategy to avoid holiday debt in the future is to start saving a specific amount each month — starting in January — for your Christmas budget.

You can even set up a separate account to accumulate your savings, she said. Years ago, Christmas club accounts were very popular, and many banks still offer them.

Paying off the debt you have and stopping new balances from accumulating is essential.

If you pay cash or using your credit card but pay off the balance in full during the holidays, you’ll prevent a large balance on your credit card and avoid the high interest rates, Daquila said.

“The average rate on a credit card can range from 12.45 to 18.49 percent, depending on your credit score and the type of credit card,” Daquila said. “Typically, the department store credit cards even have much higher rates.”

She said unpaid balances begin to build quickly when they are not paid in full and the interest is added to the unpaid balance.

As an example, if you have an outstanding balance on a credit card of $1,500 and make a minimum payments of $60 a month with a 14 percent interest rate, it would take you six years and six months to pay off this debt. The total interest paid over that time period would be $534 which is more than one-third of your original debt.

Daquila had a few other suggestions to avoid building debt.

If you use the credit card, set alerts with your credit card company to notify you of your balance. This will keep you informed of your balance so you can stay within your set budget, she said.

In addition, you can set up an automatic payment from your bank account to the credit card company, she said. You can make a payment prior to receiving your statement if you have the cash available.

“There may be benefits to using a credit card in some cases such as extended warranties, additional discounts and purchase protection,” Daquila said. “However, if you are not disciplined in paying your balances when due, then the best advice is to use cash, checks, or your debit card.”

Happy holidays!

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This post was first published in December 2016. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.