Credit Card Use During the Holidays
Millions of Americans use credit cards every year, but the numbers spike during the holiday season. ComScore, a marketing statistics company, states that online credit card spending alone hit $29.1 million during the 2009 holidays. That number goes even higher when retail store sales are added in. Credit cards offer a convenient way to pay for holiday gifts, but it comes at a price in terms of interest and increased debt load.
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Use
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Consumers use credit cards during the holidays to make online and in-person gift purchases, as well as to buy related items such as home decorations and party supplies. MasterCard has cited online shopping as a fast growing area, driven by discounts and special holiday offers like free shipping. Shoppers can use credit card to make purchases they could not afford to pay for all at once, then spread the payments out over time.
Time Frame
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Many consumers who use their credit cards during the holiday season take several months to pay off the balance. A "Consumer Reports" holiday shopping poll found that 6 percent of people who charged holiday gifts in December 2008 were still paying off those bills as of October 2009. That number jumped to 10 percent for families with children younger than 12.
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Effects
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Credit card use during the holidays has costly effects for consumers who stretch out the repayment. Interest rates vary based on the economy and a consumer's credit rating, but as an example, a 12 percent annual rate means 1 percent added to the outstanding balance every month. People who carry high balances as compared to their total available credit may also have a lower credit score, the FICO credit scoring company explains. This can make it harder to open other accounts or get new loans. the ability to buy holiday merchandise without paying for it all at once may lead to overspending because the consequences are not immediately apparent.
Solution
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You can save a significant amount of money by reducing or eliminating credit card use during the holidays. Start saving money for Christmas early in the year. Many banks and credit unions offer Christmas Club accounts designed specifically for this purpose. Limit your expenses to things for which you can pay cash. You also have the option of placing items on layaway and paying them off in the months before the holidays. This keeps you from racking up charges and saves you from having to shop during the Christmas rush later in the year.
Warning
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Overuse is not the only credit card hazard associated with the holiday season. Discover Financial Services Vice President of Security Jack McCoy warns that fraud attempts go up during the holidays. Guard your purse and wallet while you are out shopping, and make sure your spyware detection software is up to date before making holiday purchases on your computer. Don't give out credit card information to telephone callers claiming to offer cheap merchandise or prizes or asking for charitable donations. Check your statements and credit reports after the holidays to pinpoint any suspicious entries. The federal Fair Credit Reporting Act mandates free annual credit reports, which are provided through the annualcreditreport.com website.
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References
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