PFT #93 - Personal Finance Tip of the Week: Credit Cards After The Holidays

After the December holidays we often hear people talk in social groups and in the media that the credit card bills are coming due as a result of shopping during the December holidays.

Obviously, this means only one thing: that if you have payments coming, debt was compiled that can’t be paid off in one billing cycle. Moreover, the simple fact is that when this occurs, it means that people are buying things that they cannot afford.

We have talked about this many times . . . this is not a good practice. Secondly, it is probable that this debt is piled onto existing debt.

To put this in perspective, the average consumer spends $1,000 during the holidays with a 1%-4% minimum payment. In addition, the average new card interest rate is over 24% at the time of this recording.

So let’s analyze the minimum payment at 2%; it will take 56 months to pay off with a total of $664. So in effect, the holiday shopping cost you $1,664 or 64% more than you originally spent - that’s big ouch!

Imagine going to buy a box of cereal that was $5 and it was $8.32. You may opt for that purchase. So why pile the debt on credit cards?

On this show our mission is to provide you with insight rather than tell you what to do. However, if you cut down on spending, engage in maximum spending limits with family and friends or have an outing rather than gift exchanges, these are great ways to reduce spending.

Now try this thought on for size: when the holidays approach next year, think back to all of the gifts that you bought and received and the odds are that you will not recall most of what was opened.

So, the question is: how important do the gifts really matter? Perhaps, spending time with the people that you love is more valuable than money.

As a side note, it is a good idea to refrain from the practice of waiting for a tax return to pay down debt in general, because this means the government is using your money for free when you could be paying down debt during the year. To learn more about this listen to episode #47.

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