How To Plan A Debt Free Christmas

November 3, 2008, Written By Sarah Hefner

While most people have barely had a chance to put the Halloween decorations back in storage, some radio stations are already playing non-stop Christmas music. This is a good reminder that it is time to start saving for the holidays.

A recent survey by the National Retail Federation indicates that many people have already started their holiday shopping. The survey found that 40.2% of consumers started their shopping before Halloween. Consumers plan to spend an average of $832.26 on holiday-related shopping, up just 1.9% over last year’s $816.69.

Every year, consumers are reminded that unless you pay off your balance every month, you should limit using credit cards for holiday purchases. Limiting credit loans for holiday shopping avoids inflating your debt in the new year. The credit crisis of 2008 has made this even more critical because creditors are closely watching spending and credit limits for every account. Lenders who were once so aggressive with extending credit are now very sensitive to an increase in the amount that you borrow. An increase in your balance sends a warning to issuers that you are a higher credit risk. This can result in a lower credit score, a higher APR and a lower credit limit on your credit card account.

Before making your first holiday purchase, experts advise consumers to verify the credit limit on every credit card you use. Issuers are protecting themselves by lowering credit limits. If you are unaware that yours has been lowered, you can unknowingly exceed your credit limit. This can cause problems including a lower credit score and a significantly higher APR. If you exceed that limit twice in a rolling 12-month period, some issuers have the ability to take your APR up to the default rate, which can be anywhere from 28% to 32%.

Experts offer these tips to prepare for holiday spending:

* Start saving now. Look at what you spent last year and try to save that amount in the next two months. If you spent $500, you can save $62.50 per week for the next eight weeks and afford everything you purchase, or apply that payment to your January credit card balance so you don’t have to pay interest on your holiday spending. Instead of eating out, take your lunch to work or eat more meals at home from now through December; save that money for Christmas purchases.

* Change your shopping habits now before you get into the spirit of the season. If you can’t afford to pay off your credit card in November, then you can’t afford to add a lot more to it. “It’s Christmas” is not a good reason to put yourself deeper into debt. If you are still paying for purchases from last Christmas, then you can’t afford a lot of shopping this Christmas.

* If you must use a credit card loan to pay for Christmas, make sure you can pay it off by Easter.

* Pay attention to your credit limit. If you are close to your limit in November, you could have problems by December. The punishment for going over your credit limit is no longer a simple fee. You will have to pay the $39 over-the-limit fee, and your APR is almost sure to increase. If you add to your balance and your credit utilization goes much higher than 50%, you could hurt your credit score.

* If you are looking for a new credit card, this may be a good time to apply. If the card has a 0% intro rate for purchases for six or 12 months, you can use your card as a free loan for holiday spending. This is recommended only if you pay it off before the interest charges begin.

* If you really want to stick to your budget and avoid impulse spending, pay in cash. According to Dun and Bradstreet, people spend 12-18% more when using credit cards than when using cash.

Many households are struggling financially with credit card debt and mortgage payments. This is the year to give yourself permission to have the Christmas that you can actually afford. Don’t add to your financial stress by adding more debt for gifts that will be forgotten before the first credit card bill comes in January.

If you have been carrying a balance, it is critical to look at the effect of additional spending on your credit card. Say you charge another $1,000 for holiday purchases on your credit card with an interest rate of 15%, and you pay just $30 each month. It will take 43 months to pay off Christmas 2008, and you will pay an additional $302 in interest.

The survey from the National Retail Federation can be found here:;=viewlive&sp;_id=590

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The information contained within this article was accurate as of November 3, 2008. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.

About Sarah Hefner

Sarah Hefner has written for several publications as well as serving as an editor to various writers. She graduated from the School of Communications & Journalism at Auburn University with a Bachelor of Arts degree in Public Relations.
View all posts by Sarah Hefner