How to Avoid the Holiday Debt Trap

There's no escaping the aftermath of too much holiday cheer, whether it's a few extra pounds or the dreaded hangover. Binging on gifts and entertaining can leave a lasting pain, too: credit card debt.

The average person will spend
$967 on holiday shopping this
year, according to the National
Retail Federation.

"When holiday spirits run high, impulse control can vanish. We gobble up that extra cookie, and we splurge on that extra gift," said Gerri Walsh, FINRA's Senior Vice President for Investor Education. "Especially when paying with plastic, it can be all too easy for many of us to bust through our holiday budgets."

The average person will spend $967 on holiday shopping this year, according to the National Retail Federation. And there can be real consequences when consumers use a credit card to do that spending and don't pay it off in a timely manner.

If you charged that $967 to a credit card with a 15 percent annual percentage rate (APR), and you paid just the minimum each month of about $25, it could take you four and a half years to pay off those holiday charges, and cost you over $362 in interest alone. 

Related: Bye, Bye Shopping Madness: 6 Tips to Help You Stop Overspending Online

Luckily, there are ways to plan now to avoid a debt hangover later. Here are five tips to help you exercise restraint this holiday season.

Make a List and Check it Twice

Before you do anything else, set a budget that won't have you ending the holiday season in the red. Include every person you intend to buy a gift for and the amount you intend to spend on that person. Don't forget other expected costs, such as travel, decorations or food and drink costs if you are hosting a party. 

If you know exactly what you want to buy, make sure you note the cost of each item, and scan for any sales or coupons that you can be sure to have handy when shopping. And if you do land a gift at a discount, stick to your list and take it as a win. Don't add on additional, unnecessary gifts. 

Track Your Spending

The list is just your starting point. Consider using money management apps to help you stay on budget, or a computer spreadsheet to track holiday expenses. If you prefer it the old-fashioned way, pen and paper will do. Just track everything all in one spot. 

If you end up spending more on one person than you planned, you'll have to find other ways to cut back. 

Consider Shopping Solo

Are you the type of person who's easily influenced by others? If so, stay away from big spenders during your holiday shopping trips. Sometimes group shopping excursions can lead to budget-busting spending frenzies, sending people deeper into debt than they had planned.

Reward Yourself With Your Credit Card Rewards

If you plan on charging your purchases, get a handle on which of your credit cards offer the best reward points programs before you hit the stores. That could mean using one card for gift purchases at large department stores, another at some online retailers or another for those holiday food and drink purchases. 

Just be careful to stick to your budget. You should view these rewards as a bonus on your holiday purchases, not as a justification to spend more than you originally planned. 

Get Smart About Credit Card Offers

While some may look tempting, be sure to read the fine print, advises FINRA's Gerri Walsh. A common feature to look out for is called "deferred interest," Walsh notes. Under this scenario, you might be offered 0 percent interest for a certain period of time. Should you miss a payment or leave any bit of your balance unpaid when the introductory period ends, however, the provider will retroactively apply charges to your entire purchase amount.

That's very different from a standard 0 percent credit card, which only assesses interest on the balance left after the introductory term ends.

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