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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Episode Transcript

(00:00):
Seoo. Hello every one, Iam David and you were listening to the
Personal Finance Tip of the Week andthis week's topic is on credit cards after
the holidays. After the December holidays, we often hear people talk in social

(00:24):
groups and in the media that thecredit card bills are coming and this is
due as a result of shopping duringthe December holidays. Obviously, this means
one thing that if you have paymentscoming that 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 arebuying things that they cannot afford. Now,

(00:49):
we have talked about this many timesand this is simply not a good
practice. Secondly, it is probablethat this debt is piled onto existing debt.
To put with this in perspective,the average consumer spends about one thousand
dollars during the holidays with a oneto four percent minimum payment. In addition,
the average new credit card interest rateis twenty four percent at the time

(01:12):
of this recording, So let's analyzethe minimum payment at two percent. This
means it will take fifty six monthsto pay off the card for a total
cost of one thousand, six hundredand sixty four dollars. So this means
you actually paid sixty four percent morethan the original cost of your holiday gifts.
So let's take another viewpoint. Imaginegoing to buy that box of cereal

(01:36):
that's five bucks, and now youfind out it's eight dollars and thirty two
cents. If this was the case, there's a good chance that you may
opt out of that purchase. However, when it comes to a credit card,
you buy things, you let interestbuild up, you kick the can
down the road, and you don'tthink of how much extra money you're actually
spending. Now, our mission onthis show is to provide you with insight

(02:00):
rather than telling you what to do. However, if you cut down on
spending, engage in maximum spending limitswith family and friends, or simply have
an outing rather than gift exchanges,these are great ways to reduce spending.
So why don't we try this exerciseon for next year? When the holidays
approach, think back to all ofthe gifts that you bought and received,

(02:22):
and the odds are that you willnot recall most of what was opened.
So the question is how important twogifts really matter? Perhaps spending time with
people that you love is more valuablethan money. Okay, let's do one
more note before we go. Itis a good idea to refrain from the
practice of waiting for a tax returnto pay down your debt in general,

(02:44):
because this means the government is usingyour money for free when you could be
paying down debt during the year.To learn more about this concept further,
listen to episode forty seven. Sothat will do it for the personal finance
tip of the week. Until nexttime, I am David