The holidays are expensive there is no doubt about that. Just how much are we spending? According to the National Retail Federation an average of $423 compared to $398 last year. Shoppers lured by deals often fall prey to opening credit cards to get an extra discount or delay payments.
Card Hub’s latest study shows eight out of ten retailers offer financing to consumers, but more than 60% of them provide mind boggling terms, such as an offer of an initial zero percent term with backdated interest if the entire balance is not paid off during the offer period.
So unless you can commit to reading the fine print, and paying newly opened account balances in full under the agreement, your best bet is to steer clear of store’s tempting credit offers.
Hook, Line & Sinker
The credit card company gave you the hook–a zero percent term, 15% off your first purchase, a mug; you know you’ve been asked at the register. Then comes the line–they drag you down with the high interest rates upon the end of your “special offer” period. And last, the sinker, the fees. Late fees, over the limit fees, balance transfer fees, you name it there is a fee for it
Credit cards are the biggest money maker in the banking world; interest charges, fees and the unknown are the undoing of the average consumer.
Here are 5 of the traps we fall for when it comes to credit cards and holiday shopping:
1. The 0% APR. I don’t know about you but I receive a ton of these in the mail (they immediately hit my shredder). Even those of us with average credit are given the carrot, a 0% card offer. But read closely…most of these offers are for balance transfers and include a balance transfer fee (aka interest). If you bite the carrot, most likely you’ll find-a high interest rate on purchases and cash advances. You use the card after receiving it in the mail and are shocked to see the 0% card has charged them 21% interest on the scarf you just purchased for grandma.
2. Default APR. Ah, the default APR. Miss a payment and you can bet your bottom dollar your entire balance will be subjected to the rate once reserved for those with “credit problems”.
3. Don’t be late. After one late payment not only are you married to the default APR but you are charged a late fee. Gone are your savings from the “special offer” you received December 15th at the checkout.
4. Charity or trap? We want to do something good for others; cure cancer, save helpless animals from suffering and extinction, build houses for the needy; we all have a softer side at Christmas and want to help others. Enter the charity affinity card. Credit card providers make an agreement with a charity to use the charity’s name on the card, in exchange for a donation to the charity. So what are you really giving when you sign up for one of these cards? Will the charity ever see that money? If you really want to give to others consider alternatives: volunteering at a soup kitchen, helping out at a habitat for humanity site, or tossing some change in the Salvation Army bucket.
5. The silent killer…minimum payments. The bill comes you see payment due $25. Sweet! I got my whole family presents and all I have to pay is $25. The non savvy credit card user makes a big mistake; they pay the minimum for a few years and wonder why their balance never goes down. Paying only the minimum will keep you in debtor’s prison for a very long time with the need for debt relief. The holidays are costing you several times over what you originally spent.
Your best bet, skip the offers, pay with cash, and stick to a holiday shopping budget. We all feel “giving” around the holidays and our emotions are often a straight-line to our wallet. Your friends and family will love you no matter what, even if you can’t afford what’s on their list. Remember the season of giving doesn’t have to be the season of spending.
Be honest, have you ever opened new credit cards to fund the holidays?
Holidays and credit cards went hand in hand for years for us……guess what…STILL paying for those Christmases. Blech.
Cash only Christmas for this family…..that’s the BEST present we can give ourselves. 🙂
@Travis Good for you! Cash only is the way to go 🙂
The presents purchased on credit are probably long forgotten…Having kids you know what I mean…it reallt stinks to still be paying for them.
I have faith in you, you have a plan, and you are on your way!
We never have to be honest. We’ve budgeted for Christmas shopping for years. We pull out the cash each month and then come time to do the shopping we use our credit card to earn the rewards and then pay it off with the money we’ve pulled out.
@John S Great strategy! Saving and getting rewards…love it!
Not surprised that 8 out of 10 retailers offer financing – I am regularly asked to sign up for the store’s credit card at nearly every store we visit when shopping. They must coach the cashiers or incentivize them as well because almost all of them ask a second time after I say no.
@Mike Having worked in retail I can say that you are most likely correct. The store I worked for gave incentives to employees based on the number of new accounts they could open. I was a teenager at the time and was thrilled to get a “bonus” for selling these cards to customers.
While I have never opened a credit card just for holiday shopping, I do use them for my holiday shopping. I used to be in debtors prison, but have worked my way completely out. I know use my cards responsibly and pay them off every month. I even get cash back and most places that I shop, even more online. I also never purchase anything that I can’t pay for with cash. I know I can pay them off once they come due. If you have discipline, then using credit cards are not bad.
I would and have never opened an account on the spot to save money. The interest rate is way to high.
@Grayson Knowing how to responsibly use credit cards can be a great way to save and sometimes even get cash back on your purchases–congrats on being debt free!!
I won’t be worrying about any of that! I don’t have credit anymore! YAY ME! Unfortunatly, it took a BK to get be back on track and I will never play that game again, EVER!!!!!!!!!!
Congrats on the award! YOU rock!
@debtgirl #TeamEOD thanks you 🙂
So glad you are debt free–even though the road was rocky…you did it!
Years ago when purchasing furniture during a sale, I was offered a store card with a “15% off your first purchase” deal. I had intended to pay with my current card (for the mileage and then pay it off immediately with the cash set aside), but instead I signed up, got the sale price I went for plus an extra 15% off a major purchase. Then I walked directly to the service department in the store and paid off the total bill and requested the account be closed. I never even received the card. Yes it probably impacted my credit rating slightly to open and close a card so quickly, but as we weren’t about to renew our mortgage any time soon and never take out car or other loans EVER, I really don’t care much about my credit rating. If you never need credit your credit rating is pretty much irrelevant.
@JMK You are absolutely correct and I am quite sure Mr. Chaffee would be proud!