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?