Avoid Holiday Debt

Five Ways to Avoid Holiday Debt by Scott Bilker
Scott Bilker is the author of the best-selling book "Credit Card and Debt Management." He is also the Editor and publisher of the FREE DebtSmart® E-mail Newsletter (http://www.debtsmart.com). Sign up today!

Between Thanksgiving and Christmas people are going to spend $121.4 billion using their credit cards! The key is not to let this debt stick, not to allow yourself to get buried by that debt. Not ending up spending the next year paying off the purchases from this holiday season. How are you going to pay for the gifts? Credit cards of course! I'm sure many people are going to criticize me for even suggesting such an idea. I can hear it now, "Scott, are you crazy? Don't use your credit cards USE CASH! I thought you're the anti-credit-card guy?"
I'm not the "anti-credit-card" guy I'm the DebtSmart guy. It's not the credit spending that going to put you into debt. It's the "spending." If you're going to spend $1,000 then it doesn't matter what you actually use to pay that $1,000. You can use cash, credit, or a check. Once it's spent it's gone!
The key is to be smart about how you pay and using your credit cards is very smart. There are many reason to use your credit card for shopping here are a few:

* Interest-free grace period
* Purchase protection (ability to do chargebacks)
* Building credit worthiness
* Automatic extended warranties (on some cards)
* If you lose your cash it's gone! If you lose your credit card, and report it right away, you don't lose any money.
* You may be able to get additional discounts.

What keep you out of trouble is that you stick to a plan. If for example you plan to spend $100 on a television and end up spending $200 only because you can use that credit card--that's when you'll be heading for trouble.
Over the years I've been following a few easy steps that have helped me enjoy the holiday season without having to worry about its cost. It's my hope these suggestions can also help save you money as well.

1) Decide how much you can afford to spend. This is clearly the most important step. Before heading to the store you must know the total amount you can afford to spend. Total spending for all gifts. The average amount people spend is around $1,000. That also falls right in line with the response from DebtSmart readers who participated in our survey on 10/24/01.
It's not the amount you spend that counts it's just important to know your holiday spending limit. When thinking about your limit keep in mind how much you would pay if you only were going use cash. How much money can you have available to pay for holiday spending when the bill arrive in January?

2) Make list and stick to it. Now that you have a dollar limit in mind you can start to make your list. We have been using an Excel spreadsheet to help with our list. I created a scaled-down version of this spreadsheet for your use. You can get it at: http://www.debtsmart.com/pages/holiday.xls
The spreadsheet lists everyone on our gift list and card list. It shows the person, gift, and cost. The "Star" column indicates if the person still needs a gift. If there is a star by their name then they're gift has been purchases. Once you enter a number in the cost column the star disappears. Enter everyone into the worksheet, or if you don't have Excel simply create a list by hand, and estimate how much you want to spend for each person by enter a dollar figure in the "Estimate" column. After you done with these estimates check the estimate total. That total should not exceed your original holiday spending limit. If it does you'll need to go back and make some adjustments. Every year we update the list and make a printout. We carry that print out around starting in September just in case we find something on sale that will make a great holiday gift. Refer to your detailed estimate list while shopping. Stick to the numbers on your list and you'll be sure not to go over your original holiday-spending limit.

3) Contact creditor for best deal This is the best time of the year to make your credit card banks beg for your business! Many people feel at the mercy of their banks but that's not the case. The banks are at our mercy. Undoubtedly you have a few credit cards and now is the time for them to fight for you to use them this holiday season. Give each bank a call and let them know that they're going to have to give you a deal or you won't use their card this year. Tell them you want 0% for 6 months on purchases or else you'll use another card that will give you that deal. See what happens.
I find that 50% of the time I'm able to strike a deal with one of my credit card bank. If they don't then I simply use another card! Give them a call right now!

4) Take advantage of department store card deals and transfer balances Again I hear people saying I'm crazy for using a high-rate department store card! And again I say that you just need to be smart about doing it. Every year I get offers from many department stores for discounts if I use their card. Discounts that are 10%, 15%, or more! I do use these discounts however, I'm sure to transfer my balance from the high-rate department store card to the lower-rate credit card before any interest is charged. This way I can take advantage of the discounts plus get low-cost financing (if needed).

5) Pay off the card in full when the bill arrives (if possible) Ideally you should pay off all credit card charges, in full, when the bills arrive. If you stick to your plan then you'd have spent within the holiday-spending limit. This limit should have been based on how much money you'd have to pay the bills when they arrive so, in theory, it will be easy to pay everything off right away. Of course, this doesn't always happen for many reasons like unexpected car failure for one. That's why it's important to use a credit card that's going to give you a few months with no interest on purchases. This way, if something does delay your ability to pay in full right away you can have a little time, at no additional cost, to pay off those charges

Is it worth all the work? Yes indeed! Say you spend 3 hours of your time juggling all the transaction, doing the balance transfers, and calling your banks. Most likely are you're going to save at least $60 by be being DebtSmart so that's $20 per hour! Is it worth $20 per hour? I think so.

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