holiday gifts

Don't Let Debt Ruin Your Holiday

Consumers are feeling the holiday spirit. Personal finance website NerdWallet expects shoppers to spend an average of $776 on gifts this year, about $100 more than last year. And NerdWallet says more consumers plan to pay for those gifts with credit cards.

“There are actually a lot of benefits to using credit cards to buy gifts as long as you pay off your balance every month,” said Kimberly Palmer, a personal finance expert at NerdWallet.

Those benefits include purchase protection if an item is lost or stolen, as well as cash back and other rewards.

About 28% of consumers are still paying off last year’s credit card bills, according to NerdWallet. With interest rates at 17% or higher, Palmer says consumers who are already carrying credit card debt may want to consider other options.

"We expect that if you finance your gifts with credit cards, you'll actually end up paying much more than you would have spent otherwise on those gifts," Palmer said.

Palmer says before you start shopping, it’s important to set a budget.

“You want to make a list of all the gifts you want to buy, the people you intend to buy them for. And make sure you stick to it. Because a lot of people get taken over by the excitement of the season and they end up spending much more than they intended,” she said.

A NerdWallet survey found it will take the average consumer 3.2 months to pay off their credit cards.

“The best way to get a handle on your debt is first to understand exactly how much you have and what interest rates you’re currently paying,” Palmer said.

Then you should focus on paying down your current debt. Palmer suggests finding a card with a low interest rate, and paying more than the minimum payment each month.

Consumers can also limit holiday spending by taking advantage of any credit card rewards they’ve already earned. Some credit cards allow you to make purchases with points, while others offer cash back.

If you’re not paying with cash or credit, there are other financing options available. But Palmer urges shoppers to do their homework first.

“We found about a third of people are actually planning to use layaway, which is really a traditional method of paying money over time until you can afford to bring your gift home,” she said.

It’s important to understand the terms of the layaway program. Some retailers charge a cancellation fee if you are unable to make all the payments.

NerdWallet found 20% of consumers plan to take advantage of shopping loans, which allow consumers to pay in installments.

The terms vary by retailer, and Palmer says if you’re not careful, the cost can add up quickly.

“In some cases, there are no fees and no interest. You’re just paying the installment loans over time. But in other cases, the fees and interest rates are pretty significant,” Palmer said.

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