3 Keys to Avoid Credit Card Debt While Christmas Shopping Over the Holiday Seasons

The holiday season is a time when credit card debt runs as wild as Christmas shopping. The businessmen know it and welcome it. They're betting on shoppers loosening their purse strings and taking full advantage of it to boost their sales and profits. The holiday season is their busiest months when they stock up, price up, and laugh all the way to the bank.

With our busy schedules in this modern time, each year appears to come and go too rapidly. Before you can recover from the Christmas shopping last year to rebuild your savings, the holiday season is here again this year. Add to the fact that Christmas is the time to splurge on and show appreciation to the ones you love, no one seriously heeds the advice of following a good budget. Spending easily gets out of hand and money becomes short.

Employing credit cards to cover the anticipated shortfall in resources is extremely appealing under these circumstances. It offers several advantages in financing your expenses. You have:

• free credit without cost for 30 days or more
• a chance to spend over and above your financial sources, at least in the short-term
• a statement to record your expenditures
• the choice to carry less cash and rid of the hassle of dealing with cash

Using credit card as a means of finance has its own hazards when not handled properly though. Spending can escalate to an additional high of 35% when using credit card in contrast to cash as some studies have suggested. It is simple to end up being one of those struggling financially post-holiday season, worrying over the bloated credit card debt.

On top of that, Christmas shopping is by and large for consumer consumption like Christmas gifts, vacation trips, entertainment and so forth. The credit card debt thus incurred is labeled as consumer debt. Such a debt raises your liabilities but adds absolutely nothing to your assets. It also decreases your net worth by the same amount.

The net worth refers to a person's net economic position. It is a way of measuring your wealth. A reducing net worth is not a very good sign of financial wellness.

How do you ensure you won't fall into the trap of overspending in Christmas shopping with credit card?

I'm glad you asked. Below are 3 keys to bear in mind to safeguard yourself against going into personal credit card debt problems during the holiday seasons.

1. Christmas Budget

Can I assume that you've drafted or are going to draft a budget plan for the festive season? With a budget, you will see clearly if your desired Christmas expenses will result in a shortfall in your funds. Without one, how can you tell whether you may be spending more than you can afford? After that you can decide on one of two actions to meet the shortfall: cut down on the planned holiday expenses, or cut down on your other normal expenses. Only as a last resort where both these aren't an option should you consider the use of credit cards.

Understand that credit cards can create problems in managing personal finances. The tendency of most people is to rely on the statement to trace their credit spending after the fact. Since the statement only arrives one month later, you risk living beyond your means in the meantime. You must keep an eye on both credit and cash spending as they happen to see the full picture of your holiday expenditures. Compare it against the budget to make sure you don't overspend.

2. Debt-Income Ratio

Making use of the credit card will increase the debt. This in turn will impact the debt-income ratio. The ratio is calculated by dividing the monthly debt repayment amount over the monthly net income after tax and expressing the result as a percentage.

The debt-income ratio is an important indicator to watch out for when managing your personal finances. A high ratio implies you might have over leveraged and are burdened with excessive debts. It raises the question of your ability to clear the money you owe timely. Exactly how high is high? You can take 20% and up as a warning sign your financial health is questionable.

So, check your debt-income ratio before you Christmas shop with credit cards. Alternatively, so long as you have credit card debt that is past due, don't pile more debt onto it.

3. Bridging Finance

As convenient and easy as it is to obtain unsecured credit through a credit card, it preferably should only be used for short-term bridging finance. You ought to pay off the credit card debt by its due date. Paying the minimum balance will usually land you in trouble eventually. You'll be doing yourself a big favor not charging your Christmas shopping to the card if you lack confidence repaying the full amount when it's due.

In case you proceeded ahead to charge your credit card without being able to pay back in full, be prepared to pay for additional costs. The common costs connected with the extended credit are interests, penalties, and such other fees. So long as you are willing to cut down on some of your regular expenditures to fund the extra costs, you can still quickly eliminate them. Once you drag on repayment, you're in danger of piling on more debts.

So do have yourself a merry little Christmas. Just make sure you don't land yourself deep in credit card debt after the holiday season. In order to avoid this, control these three vital aspects: the additional spending due to Christmas shopping, your debt level, plus the way you fund the greater spending. Finance your Christmas shopping sensibly and you will avoid the dread credit card debt.