Judith A. Wakefield
November 9, 2003

Avoid Christmas Debt

Next month is Christmas. Many people get into financial hot water because of their good intentions with purchasing holiday gifts they really canít afford and putting them on credit cards. Itís not very smart to charge something on a card and still be paying for it for months after Christmas, often toys are broken within a short time and it may be before they are even paid for!

The wise money manager puts money aside throughout the year for Christmas gifts, then stays within what has been saved. Others buy gifts throughout the year so the expense is spread out over the year. It feels really good to be gracious at Christmas knowing that everything is paid for.

Credit is easily available but it is expensive. Itís awfully tempting to buy unplanned items and put them on credit cards. This is spending future income. Many people have several credit cards and at least some of them are maxed out. Make it a the priority to make payments as large as possible to pay off the debt. Excess credit card debt can force people into bankruptcy and this can affect their ability to get a loan to buy a car or a home in the future, even to get a job! Itís a lot smarter to use credit sensibly.

If you have credit card debts you canít pay off this month, stop using the cards. Cut up or lock away credit cards so you wonít be tempted to use them. Itís easy to make just the minimum payment required on a credit card bill, but if you have (for instance) a $3000 balance at an annual interest rate of 18 percent and you only pay the minimum amount each month (and donít charge anything else on that card), it would take you eight years to pay it off and you would have paid $2,780 in interest. You would be paying nearly double the value of the items your purchased.

Those who need help with this can contact the Consumer Credit Counseling Service and they can help them set up a budget to pay off bills. They work with both the debtor and the credit card companies to facilitate manageable payments.

Read the small print on your credit card information. The interest rate is higher for cash advances on credit cards than for purchases. Avoid using credit cards to get cash and make sure you mail payments early enough that they arrive and can be posted before the due date. Some companies charge hefty fees for late payments and late payments show up on credit reports.

If you use a debit card be sure to keep a careful record of you purchases through the card. Deduct each amount from your check book as you use the card so you donít end up overdrawn at the bank - they can charge hefty fees and overdrawn bank accounts also show up on your credit report. Use them to get cash only at the bank chain that supplied the card to avoid fees.

The best way to use credit cards is to only charge each month what you can afford to pay off in the next payment. This way you have no interest to pay and the convenience of having the card.

Some people donít have any credit cards at all, but in an emergency you do need one in order to rent a car or make airline reservations. Credit cards seem to be a necessity any more but it is up to us to use them responsibly.

Itís a really good idea to make up a Christmas budget. Decide ahead of time who you are getting gifts for and how much you can really afford to spend on each person. Although parents love to shower children with gifts at Christmas, itís smarter to stick to a budget. Children usually have a list of their wants, ask them to set priorities - what do they want the most? Also consider what is practical, useful, age appropriate, educational and fun. Share their wants with other family members who buy them gifts so they can help fill in.

If you havenít put money side for Christmas thereís still time to spread out the expense. You can get what you can afford to pay cash for in November. This much will be done. Once you decide on an item, look around to find the best price. Many stores have big sales after Thanksgiving.

If you have the talents, consider making some gifts. Be sure it is something useful. Other possibilities are gift certificates for things you will do for the person at a later date.

Be sure to save the sales slips of your purchases. Keep them all together in one place and attach a note reminding yourself what the receipt was for. These will be helpful if gifts have to be returned or, if you put them on a credit card, to verify your expenses and make sure the bill doesnít have mistakes.

Be sure to keep careful track of credit and debit cards. Donít leave them laying around where someone else could pick them up and use them. Itís a real headache to have to contact the companies and close an account.

One of the best gifts you can give yourself and your family is a debt free Christmas. Think about it, work on it!