Blog
Holiday, Vacation & Weekend
4 Principles to
Follow to Avoid Credit Card Debt During the Holiday
Seasons
The
holiday season has arrived. It is time to celebrate,
make merry, and have fun. Travel plans have been made,
lists of gifts for family and friends have been drawn
up, and arrangements for parties are in full gear. It is
indeed the season to be jolly, but also the season when
spending runs wild.
discount credit cards, travel
cards
Business people usually cash in on the
holiday seasons to maximize their sales and profits. It
will be high season for them. They will stock up, price
up and smile all the way to the bank. They know that
people will be less restrained in their suspending than
at any other time. It possible that you may be among the
many who have suffered post-holiday season financial
stress, and want to make sure it does not happen again.
Your success in this will be determined by how well you
control three critical factors: your increased rate of
spending, the manner in which you finance that spending,
and the heavy financial demands that follow in the
subsequent month.
Financing Using Plastic
With holidays like Christmas or the New Year seeming to
come round too quickly, people often find they have not
saved up enough for their celebrations. Moreover,
budgeting is an alien concept during this and spending
can spiral out of control. To cover the inevitable
shortfall in resources, the credit card is an obvious
attraction. There are advantages to using the card to
finance your expenditure:
i) It gives you free
access to about a month’s credit.
ii) It gives
you the temporary ability to spend beyond your current
means.
iii) It allows you to track your
expenditure.
iv) You do not have to carry lots of
cash around with you.
Use of credit card, how
ever, does carry with it significant dangers if it is
not carefully controlled. Research indicates that
spending could increase by up to 35% when using a credit
card compared with using cash. Here are some key
principles to help you guard against running into credit
card debt trouble.
1. Spending Plan
If
your spending is going to exceed your income for the
festive month, consider cutting intended festive
expenses, or other expenses, to stay within your income.
I am assuming you have drawn up your spending plan for
that period. That’s where a credit card comes to the
rescue. Though not readily apparent, the use of your
credit card can create distortions in the management of
your finances. Unless you are monitoring your spending
in both cash and credit, there is a danger that you will
be uncertain whether or not you are living within your
means. It would therefore be unwise to begin using a
credit card if you are not in control of your finances,
that means using a spending plan.
2. Debt to
Income Ratio
Do not forget that use of your
credit card adds to your indebtness. In managing your
financial affairs, one of the key indicators to watch is
your debt-income ratio. This is monthly debt repayment
as a percentage of your monthly after-tax income, and
raises a red flag when you tinker with too much debt. A
ratio of over 20% is becoming unhealthy. If you already
have credit card debt that is overdue, do not add to it.
3. Bridging Finance
Use of a credit card is
ideally a means of short- term financing of your
operations. That means settling any debt incurred using
your card within days. Paying the minimum balance will
not do. If you are not confident that you can pay it off
in full, you wound do yourself a huge favor by not using
a credit card. Should you decide to go ahead and use a
card, you need to be prepared for extra costs in
interest and penalties associated with extended credit.
This adds to your expenses, and you need to be ready to
be ready to reduce other regular expense to accommodate
this, otherwise you run the risk of creating ongoing
hard-core debt
4. Net Worth
Credit card
debt incurred during the festive season is usually for
consumer spending- paying for your holiday, buying
gifts, entertainment, traveling expenses, etc and
creates what is known as consumer debt. This kind of
debt adds to your liabilities, but contributes nothing
to your assets. Your net worth is reduced to the extent
of consumer debt incurred. Shrinking net worth is not
good for your financial health. So do have yourself a
happy holiday. But as you go about it, finance it in a
way that gives you the comfort that you won't be
debt-laden the following month.
5 Things To Protect
Your Credit Score This Holiday Season
Protect your good credit rating, or learn
what to avoid to improve your credit with these 5
important tips to protecting your credit score.
mortgage, credit cards, household budget, credit score
1. Avoid Department Store Offers for Instant Credit
and Don't Open Up New Lines of Credit
"Would you
like to save 10% today on your purchase today?". We have
all been asked that question when paying for our
purchases. Every store under the sun would like to offer
you their own credit card. This is not good for your
score. The damage to your score you'll incur by opening
up a new line of credit is just not worth the few
dollars you might save. Department score credit is poor
quality credit and the credit scoring system frowns on
it. Just don't apply for the card. You may want or need
to apply for a new car loan, a new home loan, a
re-finance a home loan. By applying for store credit to
save a couple of dollars, you could be hurting your
chance of getting an important loan at a good rate until
the middle of next year.
2. Avoid Overspending
Spending affects credit. 30% of your credit score is
made up of how you manage your debt, and when your
credit card balances exceed 30% of their available
limit, the credit scoring system red flags you and your
score goes down instantly. The logic behind this is that
if you suddenly max out your credit cards, it looks to
the system as though you are in financial trouble. Only
charge if you can pay the balance in full before the
next statement date. Plus, overspending and overcharging
will also cause you to carry larger balances longer. It
is best to keep your balances low at all times.
3. Pay Your Bills On Time
Payment history is 35%
of your credit score. One 30-day late can cost you 50
points or more. December is traditionally the busiest
time of the year. Active calendars filled with work and
social commitments for family and friends and the frenzy
of the season can preoccupy you and cause you to be late
in paying your bills. Make staying on top of your bills
a priority. Put all of your bills in a file and make
sure you pay them on time. In doing so, you will save
points on your credit score and ridiculous late charges
as much as $39 or more. Additionally, when you are late
in paying your bills, you nullify any preferential
finance rate and your account will default to a
dramatically higher interest rate. A ding to your credit
score, a high late fee, and a huge increase in interest
rates are all big incentives to make sure you are on
time with your bills. I recently got a call from a
customer who had been late, but not 30 days late and the
rate jumped on his card to over 30% annually!
4.
Take the Time to Plan and Prepare Your Gift Giving
We all do it. We walk into a store ready to buy a
specific item and end up getting lured into a spending
vortex. Panic spending because the store does not have
the item you went in to buy; deciding that if you buy
this item for this person, then you have to buy this
item for another person; succumbing to the temptation of
the latest must-have gadget. You can prevent this
well-woven retailer trap by doing your research online.
By preparing before you even darken the automatic
doorstep of the alluring retail establishment, you can
determine where you can purchase specific items and for
what price. In doing so, you can avoid the retail traps
and retain control of your spending (and your sanity).
Online shopping sites have grown tremendously in
popularity. Traffic to those sites is up more than 30%
from just last year. There is a wealth of information on
the web. In fact, www.pricegrabber.com lists all of the
hottest holiday items and tells you who sells them and
for how much. Remember, if you pay your credit card bill
prior to the statement date, it will help your scores.
www.froogle.com is another great site to find the item
for less.
5. Manage Your Credit Wisely
Keep track of your credit card balances and keep them as
low as possible. Studies show that as consumers increase
their credit card balances, they become increasingly
apathetic about their balances and even about adding new
debt. By tracking balances, you will maintain a sense of
control over your credit score and your finances. Write
out a chart of who you owe, how much you owe, and what
the minimum payment is. It will help you to get a handle
on your bills, and help start planning how to pay them
off.
Climbing Out From
Holiday Credit Card Debt
Every year you plan to avoid the credit
card fiasco, and even make a wholehearted attempt to
purchase all of your holiday gifts with cash. If you’re
reading this article, chances are you ended up using
your credit cards more than intended! Don’t despair
though; there are some tried and true methods of fixing
your holiday credit card slump that you can put into
action right away. Here are some strategies to climb out
from underneath the holiday credit card slump- and help
you ...
credit, credit card, debit, debit card,
interest, IPR, charges, bank statements
Every
year you plan to avoid the credit card fiasco, and even
make a wholehearted attempt to purchase all of your
holiday gifts with cash. If you’re reading this article,
chances are you ended up using your credit cards more
than intended! Don’t despair though; there are some
tried and true methods of fixing your holiday credit
card slump that you can put into action right away. Here
are some strategies to climb out from underneath the
holiday credit card slump- and help you pay off those
purchases quickly so you aren’t still paying for them by
the time the holiday season rolls around again next
year.
Use Introductory Offers to Your Advantage
After the holidays many credit card companies
release special introductory rates to entice new
customers to apply for their cards. If you can find one
that offers 0% interest on balance transfers for a year,
you’re in! You can transfer your holiday debt from the
various cards that you used, and pay it off without
hefty interest rates. Another benefit of this technique
is the fact that you’ll have a single payment even if
you had used several credit cards for holiday shopping.
Once you combine all of them on the new 0% balance
transfer credit card, you’ve got a single, monthly
payment! (You might consider closing some of your other
credit cards).
If you are unable to find a 0%
interest rate on balance transfers for twelve months,
you might be able to find a six month introductory
offer. This is still worth the time and effort to
transfer your balances as you can work to pay them off
before the six months is up (or at the end of the six
months move the balance to a new card with a 0% balance
transfer offer!)
Credit Card Checks
If you
don’t qualify for a 0% interest introductory balance
transfer offer, you could consider using the checks that
often come with your credit cards. (Sometimes you have
to request them from your credit card company). While
the interest rate might not be zero, and it may not be
any lower than the card that offers the credit card
checks to you- if you have balances on several credit
cards, writing a check to pay off each card means you
would only have a single monthly payment. In the long
run, you would save immensely on interest and finance
charges by having a single account. In addition, paying
on a single account instead of three or four (or more!)
will help you pay off the outstanding balance much
faster.
Request Lower Rates
In some cases,
credit card companies are able to lower your interest
rate just because you’ve asked them to! It certainly
doesn’t hurt anything to pick up the phone and call your
credit card company’s customer service line to request a
lower interest rate. When you’ve gone overboard with
your holiday spending, you can really save on the total
amount you end up repaying just by having a lower
interest rate.
Get A New Card
Ideally, you
will want a card that will allow you to move all of your
other credit card balances onto, and at a 0% balance
transfer rate. There are times when you can’t get
approved for the best offers, or times when you just
have more outstanding debt than the offer allows you to
transfer.
If this happens to you, you might
consider getting a new credit card that will allow you
to transfer your entire debt from all of your other
cards, and one that has a reasonable interest rate on
the transferred balances, so that you can start making a
single monthly payment rather than several.