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5 Tips for Avoiding Credit Card Debt This Holiday Season

Nov. 14, 2014
Credit Card Basics, Credit Cards
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If you’re planning to spend more this holiday shopping season than last, you’re in good company: Americans expect to shell out an average of $804.42 on the holidays this year, according to a 2014 survey by the National Retail Federation. That’s a 4.6 percent boost from 2013, when U.S. shoppers predicted they’d spend $767.27.

But it’s important to remember that charging up your credit card to accommodate these increased expenses could have serious consequences. Failing to pay off your holiday shopping balance in full could lead to double-digit interest charges, or worse, a damaged credit score.

With that in mind, here are five tips for avoiding credit card debt this holiday season:

1. Start buying now

One reason so many folks end up in debt after the holidays is that the season necessitates a huge outlay of cash all at once. If you don’t plan ahead, you might be forced to fall back on your credit line to get all the gifts you need.

You’ve probably already heard that saving ahead for the holidays is a smart idea, but another approach is to start buying ahead. Purchasing a gift every week or two in the months leading up to the holidays will help the most expensive time of year fit more neatly into your budget. This, in turn, will prevent you from going into debt.

» MORE: Why nearly every purchase should be on a credit card

2. Cut back on other expenditures

Another way to create room in your budget for holiday gift buying is to make a concerted effort to cut back on other expenses during the winter months. Take a hard look at your spending and trim the fat where you can.

For example, do you really need that extra takeout meal this week? Preparing dinner at home would be much cheaper, and you can use those freed-up funds to pay off your gift spending instead of rolling it over from month to month.

3. Use credit card rewards to purchase gifts

If you’re looking to stay out of debt by minimizing out-of-pocket costs this holiday season, think about using the rewards you’ve built up on your credit cards to purchase gifts. Almost all credit card issuers allow you to cash in your points for gift cards, so scoring a few presents could end up costing you nothing in actual currency.

Nerd note: Before using your rewards for gift cards to give away, be sure that this redemption option will give you a value of at least $.01 per point. In some cases, using rewards for gift cards drives down the value of each point significantly. Consequently, it’s important to do the math to ensure that you’re not getting ripped off in choosing this redemption option.

4. Shop with the right card to leverage rewards

It might seem counterintuitive that using a credit card to buy your gifts could help you avoid debt, but it is possible. Here’s how: If you pick a credit card that provides extra rewards at retailers where you’re likely to do your holiday shopping, you can leverage that bonus cash back into additional gifts.

For example, the $0-annual-fee Discover it® Balance Transfer (No longer in market) provides 5% cash back on rotating quarterly bonus categories on up to $1,500 in purchases each quarter (requires activation), all other spending earns 1%. Bonus categories have historically included department stores from October to December. (This year’s bonus categories are here.) This means you can rack up big rewards by shopping strategically, then turn around and use the extra cash back to buy the rest of your gifts.

5. Consider unconventional gifts

Finally, keep in mind that a gift doesn’t have to be wrapped up in a box to be meaningful. There are lots of unconventional presents you can give to friends and family that will brighten their spirits and keep you out of debt.

For instance, you could make an ongoing monthly donation to a loved one’s charity of choice instead of giving a tangible item. If the money is gifted in your loved one’s name, he or she will experience an ongoing sense of satisfaction throughout the year. Plus, you’ll be spreading out the expense for yourself. Think of it as a holiday win-win!

Santa with a credit card terminal image via Shutterstock