Avoiding Holiday Credit Card Traps: A Smart Shopper's Guide
By Tad Thornton
I know! I know! We’re not even past Halloween & Thanksgiving and we’re already talking about the upcoming holiday season. But if you’ve noticed, the holiday season starts earlier & earlier, which means credit and debt is top of mind.
The holiday season brings joy, family gatherings, and unfortunately, some serious credit pitfalls that can haunt your financial health well into the new year. According to a recent survey by Bankrate, nearly 36% of Americans who went into debt during the 2022 holiday season were still paying it off a year later. The combination of emotional spending, aggressive retail marketing, and easy access to credit creates a perfect storm for financial strain. Understanding these traps before you swipe can mean the difference between starting January with financial peace or battling high-interest debt.
One of the most tempting traps is the store credit card offer at checkout. Picture this: You're standing at the register with $300 worth of gifts, and the cashier offers you 20% off if you open a store card right now. Sounds great, right? Not so fast. The Consumer Financial Protection Bureau warns that retail credit cards carry an average interest rate of 26.72%, significantly higher than traditional credit cards. That 20% discount quickly evaporates when you're paying 26% interest on the remaining balance for months to come. Plus, applying for multiple store cards creates hard inquiries on your credit report, which FICO confirms can impact your credit score for up to 12 months. If you're planning to apply for a mortgage or auto loan in the coming year, these inquiries could increase the cost of your new loan.
As NerdWallet financial expert Sean McQuay advises, "The best way to use credit cards during the holidays is to treat them like debit cards—only charge what you can pay off immediately." If you do carry a balance, commit to an aggressive payoff plan. For example, if you charge $1,000 in holiday expenses on a card with 18% APR and only make minimum payments, you'll pay over $300 in interest and take nearly five years to pay it off. Instead, divide that $1,000 by three or four months and commit to those higher payments.
The best approach? Plan your holiday spending in advance and use a cash-back rewards card you already have, especially one with a lower interest rate and benefits you already understand. Your future self, and your credit score, will thank you when everyone else is still paying for last year's holidays while you're enjoying this year's debt-free celebrations.