Avoid Credit Card Debt During the Holidays

The holiday season has now arrived. It is time to commemorate, celebrate and make much merry.
Travel plans have been made, lists of gifts for family and friends are drawn up, and arrangements
for parties are in the works. It is indeed the season to be jolly, but also the season when spending
runs rampant.

Business people usually cash in on the holiday seasons to maximize their sales and profits. It will
be high season for them. They will stock up, price up and smile all the way to the bank. They know
that people will be less restrained in their spending than at any other time.

It is possible that you may be among the many who has suffered post-holiday season financial
stress, and want to make sure it does not happen again. Your success in this will be determined
by how well you control three critical factors: your increased rate of spending, the manner in which
you finance that spending, and the heavy financial demands that follow in the subsequent month.

Financing By Credit Card:

Holidays like Christmas or the New Year seem to come around too quickly; people often find they
have not saved up enough to be suited financially for all occasions. Budgeting during this period
can become an alien concept and spending can spiral out of control. To cover the inevitable shortfall
in resources, the credit card is an obvious attraction. Allow me to point out that there are advantages
to using the card to finance your holiday season expenditure: 

1) It gives you free access to about a month�s credit.

2) It gives you the temporary ability to spend beyond your current means. 

3) It allows you to track your expenditure. 

3) You do not have to carry lots of cash around with you. 

However use of the credit card, does carry significant dangers if it is not carefully controlled.
Research indicates that spending could increase by up to 35% when using a credit card
compared with using cash. Here are some key principles to help you guard against running
into credit card debt trouble.

1. Holiday Season Expenditure Plan

Consider cutting intended festive expenses, or other expenses, if your spending is going to exceed
your income for the festive month so that you stay within your income. I am assuming you have drawn
up your spending plan for that period. That is where a credit card comes to the rescue. Though not
readily apparent, the use of your credit card can create distortions in the controlling of your finances.
Unless you are monitoring your spending in both cash and credit, there is a danger that you will be
uncertain whether or not you are living within your means. It would therefore be unwise to begin using
a credit card if you are not in control of your finances, which means using a spending plan.  

2. Debt to Income Ratio

Remember that use of your credit card adds to your indebtness. In managing your financial affairs,
one of the key indicators to watch is your debt-income ratio. This is monthly debt repayment as a
percentage of your monthly after-tax income (net income), and a red flag should be raised when
you tamper with too much debt. A ratio of over 20% is becoming unhealthy. If you already have credit
card debt that is overdue, do not add to it. 

3. Bridging Finance

Ideally; use of a credit card is a means of short- term financing of your operations. That means settling
any debt incurred using your card within days. Paying the minimum balance will not do. If you are not
confident that you can pay it off in full, you would do yourself a huge favor by not using a credit card.
Should you decide to go ahead and use a card, you need to be prepared for extra costs in interest
and penalties associated with extended credit. This adds to your expenses, and you need to be
ready to reduce other regular expense to accommodate this, otherwise you run the risk of creating
ongoing hard-core debt.  

4. Net Worth

Credit card debt incurred during the festive season is usually for consumer spending- paying for your
holiday, buying gifts, entertainment, traveling expenses, etc and creates what is known as consumer
debt. This kind of debt adds to your liabilities, but contributes nothing to your assets. Your net worth is
reduced to the extent of consumer debt incurred. Shrinking net worth is not good for your financial health.
So do have yourself a happy holiday. But as you go about it, finance it in a way that gives you the ease that
you will not be debt-laden the following month.

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