With the passing of Turkey Day, the official beginning of the holiday shopping season starts! There are sales EVERYWHERE! Retailers are doing their best to get your attention and get you into their stores to purchase their products for your loved ones this season. Rock bottom sales and deals ensue! But the bigger question that looms is this: how do you pay for it all if you don’t have the cash on hand?
Credit Card Dilemma
The easiest way to make gift giving possible is with a credit card. Or is it? Of course, it is simple to just swipe your card and move on to the next place. But there are a few things to think about before proceeding with just swiping left and right with one of your cards.
American Express Blue Cash Everyday is offering 2x rewards on purchases at over 50 small businesses around the country and online. This is part of their grassroots initiative to help small businesses and assist with the local movement. While this is a fantastic bonus to enhance purchasing locally and with small businesses, does it really benefit you more in the long run?
Well that all depends on your habits, really. If you pay off your credit cards in full every month, then this will certainly benefit you. But if you don’t have the cash flow to pay it off every month, then you may be biting off more than you can chew and getting yourself into debt over holiday gifts.
In a new survey by MagnifyMoney, they found that 26% of Americans expect to wrack up holiday debt that lasts longer than 1 month. Of those 26% going into holiday debt, 66% expect that it will take longer than 3 months to pay it off. The average American spends a little over $1000 on holiday shopping. So if we say that the card being used has an APR of 16%, and the minimum monthly payment is all that is being paid, then it will take over 5 years to pay off this one holiday season!
The reason for this is that the majority of people who are using credit cards during the holiday season are doing so because they don’t have the disposable cash on hand to pay for it. Logically speaking, if they don’t have the cash to pay for the gifts then they won’t have the cash to pay off the card in full either. This begins the spiral of debt over holiday gifts.
Now I don’t know about you, but I don’t plan to spend 5 years paying off this year’s holiday gifts. That just sounds like crazy talk to me!
Cash is King
As always, cash is king, if you happen to have it on hand. The best way to avoid the holiday financial stress is to budget all year for the money that you are planning to spend during the season on gifts. If you expect to spend an average of $1000, then budget $100 a month to have extra padding.
But if you are unsure how much to budget for your holiday spending, then check out this handy holiday budget calculator!
Not only that, but it takes so much more stress off of you to shop throughout the year instead. Then the most of the gifts are already purchased, and you’ve spent the money throughout the year, so you don’t feel it as much during the holidays.
I still really like the envelope system by Dave Ramsey, because it gives me more control over my spending. Not only that, but I can’t spend what I don’t have in the envelope. Or at least, that is the theory. This really only works if you don’t have your cards with you to whip them out at a moment’s notice.
Overall, credit cards are great for boosting your credit score and getting some extra bonus rewards during the holiday season. However, these rewards are ONLY great if you can afford to pay off the balance right away. If you can’t, then steer clear until you find yourself in a position to do so and keep yourself out of further debt in the process. Afterall, holiday gifts just aren’t worth the long term debt.
What are some of the best Credit Card Rewards that you have seen during the holiday season and have you found them worth using or stuck with cash?
Do You Know Your Credit Score?
Even if you don’t plan on getting a loan, a good credit score can affect your ability to get a job, a place to live, and will save you money whenever you need to borrow. If you don’t know your credit score, you can get yours free at Credit Sesame. It’s 100% free with no credit card required to signup. I’ve been using it for years to monitor my credit score.