Credit cards and other forms of personal debt were designed to help you make it through the holidays and other high-spending situations without having to sacrifice your way of life. But if you aren’t careful, the debt that emerges from holiday credit card use can control you. At the close of the holiday season, here’s some advice on taking control of credit card debt.
Holiday Credit Card Usage
Our society thrives on debt. The average Canadian household averages $3,745 in standing credit card debt and nearly 46 percent of all households carry personal credit card debt, according to research from CreditCards.com. In total, consumer debt amounts to $77 billion.
Furthermore, research from Magnify Money shows that the average household will add about $986 to its standing credit card debt during the holiday season. Gifts, parties, family emergencies, fewer work hours, and other factors all have an impact on our ability to pay for these items up front.
Most consumers don’t have much in savings, so to buy the gifts they really want to give, they often turn to their credit cards. This results in debt with high interest that could take months to pay off.
The Dangers of Credit Card Debt
It seems harmless to pay for something with a credit card now and pay it off later, but there’s a fairly large risk to this way of thinking. The biggest one is increased spending due to your credit card usage.
The average interest rate for a credit card is 19%. This rate can vary, depending on your credit score and the type of card you use. Bank cards typically have lower interest rates than store cards, for example.
Credit card debt can easily build up, and it’s not hard to forget to make payments, especially during the holidays when you’re focused more on family and fun than bills. Most people continue to use the card without thinking about the interest rates on the debt they’ve taken on, but the amounts add up.
Most people also only pay the minimum payment amounts, which won’t pay off the principle. That’s when interest charges hit and create bigger problems for those trying to pay off debt. Overall, it takes much longer to pay off credit cards versus other forms of alternative financing.
How to Control Credit Card Debt
The days following the holiday season end can be a little rough, but you don’t have to make it worse by adding mounds of credit card debt to your burden. There are many ways to minimize credit card debt and take control of your finances. Below are four of the most highly recommended strategies.
- Try alternative financing. When holiday debt feels overwhelming and you’re not prepared to handle it, don’t rely on your credit cards for a quick loan. Other financing options have better outcomes, such as personal loans.
- Write a detailed budget. It’s a lot easier to stay on track with debt reduction when you’ve set a limit on your spending. You’ll find it’s still possible to live a comfortable lifestyle while limiting your debt. Just get creative and stretch your dollars a little more.
- Shop the discounts. Plan your grocery spending around sales. There’s no need to purchase everything at full price when plenty of discounts and coupons are available to lower the cost to a more accessible financial range.
- Stay away from store credit cards. As noted earlier, store credit card debt can be loaded with high interest rates that will quickly and sneakily add to your mounting debt. Retail chains cajole you to apply for their discounts and rewards program, but you end up spending more than you save in the long run if you use the card regularly.
In the end, you’ll be doing your finances a huge favor by avoiding additional credit card debt. Spend the months after the holiday eliminating debt and working towards financial freedom – then, start saving for next holiday season.