Holiday
Don't go wild this holiday
Avoid paying for gifts with your credit cards
The winter holidays can be a drain on your finances, especially
if you have a tendency to overspend and charge up your credit cards.
To survive the holiday season, make a budget and stick with it, experts say.
Use your credit cards for Christmas purchases only if you know you can pay off the
balance within a month or two after the holidays end, experts add.
"All the good financial steps you've taken in the last nine months can be erased
if you go overboard on the holiday spending," said Greg McBride, a senior analyst with personal-finance Web site Bankrate.com.
The average American household has about $9,000 in credit-card debt at 17 percent interest, according to the nonprofit Consolidated Credit Counseling Services Inc.
During the 2004 holiday season, Americans charged $86.4 billion on their credit
cards, according to CardWeb.com.
"People aren't paying attention to what they're spending during the holidays because they're happy and buying gifts for people," El Paso certified public accountant
John Broaddus said.
Northeast resident Dan Rhon did some early Christmas shopping last week at Bassett
Place.
He said he uses his credit card to earn free flights from Southwest Airlines.
The key is, Rhon pays off his balance each month and avoids interest charges.
"It can be a great tool if you use it responsibly," he said.
Gerri Detweiler, education
director for Consolidated Credit Counseling Services Inc., said consumers will be
tempted with "aggressive discounts and promotions" during this year's holiday-shopping
season.
"But it's not a bargain if you can't afford it or
if you end up paying a high interest rate," she said.
Create a budget that includes what you plan to spend on gifts, entertainment,
tips for the hairstylist or newspaper delivery person and any traveling you may
do, experts say.
"Draw up a list of the people you plan to buy gifts for and set a budget for each
person," said Liz Pulliam Weston, "a credit expert and author of the new book "Deal
With Your Debt."
If you think your holiday spending plan is too high, look for ways to trim expenses.
Maureen Hankins, director of the YWCA's Consumer Credit Counseling Service in El
Paso, said one of the best ways to
control your spending is to evaluate what the
holiday season really means to you.
Simplify the holidays, Hankins suggested. Buy gifts for the children, but strike
a bargain with your spouse not to buy gifts for each other, she said.
"Maybe, agree with your spouse to go out for a night on the town instead," Hankins
said.
Giving the gift of time is also a good substitute for spending a bunch of
money, Hankins said.
"Spend time with an elderly neighbor or mow their lawn," she said. "You can also
agree to baby-sit someone else's kids."
Another way to trim expenses is to agree to a family gift exchange in which you
draw someone's name out of a hat and buy that person a gift instead of purchasing
presents for the entire clan.
Experts say it's generally a good idea to avoid using your credit cards during the
holiday season.
If you like the convenience of paying with credit cards, can use them responsibly
and pay off your holiday bills within a month or two, then go ahead and charge it,
Weston said.
"People who shouldn't use credit cards are those who feel they can't trust themselves
to do it responsibly," Weston added. "You know who you are."
Under federal law, credit cards have one big advantage over paying with cash or
a debit card, Detweiler said.
"If you have a problem with
a purchase, you can dispute it with the card issuer and not have to pay that charge
until the problem is resolved with the merchant," Detweiler said.
If you tend to get carried away during the holidays, pay with cash
or use a debit card. That can help to rein in your spending.
McBride with Bankrate.com suggests planning ahead for Christmas early in the year.
"Make it part of the
New Year's resolution process," he said.
One option is to open a Christmas club savings account at your bank or credit union.
If your financial institution doesn't have one available, you can start a separate
savings account that's dedicated to Christmas expenses.
That won't help you much this year, but it can make things a lot easier in 2006.
El Paso Employees Federal Credit Union, for instance, offers a Christmas club savings
account, which can be opened now through Jan. 31.
The idea is to create a "forced savings plan so you don't have to run into debt
by using your credit cards and still have a good time shopping for the people you
love," said Cecilia Lang, the credit union's vice president of marketing.
You can start with a minimum deposit of $5 and add to the account whenever you want.
The money you save, plus interest, will be automatically deposited into your regular
savings account on Nov. 1, 2006.
The catch is, if you withdraw any money early, you'll be forced to close the account
and forfeit all the interest that's accrued, Lang said.
The interest
rate is 4.25 percent.
"Have a budget and plan ahead of time," Lang advised. "Don't rush out at the last
minute to do your shopping. That's when you spend more and make mistakes."
