Credit card interest can significantly increase the cost of each charged purchase, and the problem can grow exponentially over time if left unchecked. Imagine you have a $5,000 credit card balance with a 21% APR. If you paid just $150 per month, it would take you over four years to pay off your balance and would cost you approximately $87 each month in interest charges.
This is something you’ll want to avoid any time of the year, but especially over the holidays when the National Retail Federation estimates the average shopper will spend $902 on gifts, food, decorations and other seasonal items.
How can you avoid credit card interest and holiday debt this year? The best way involves always paying your credit card statement balance in full and never carrying revolving debt from one month to the next. The following tips can also help.
Set a holiday spending budget
Setting a holiday budget and limiting your shopping list can help you keep spending in line with what you can afford. This means setting a specific dollar figure for each person on your holiday shopping list, but it can also mean cutting down on the number of people you shop for.
In any case, writing down your holiday shopping list (or setting up a spreadsheet) can help you keep track.
Leverage cash-back rewards to offset holiday expenses
Cash-back credit cards can help you get something back for each dollar you spend. If you use a card that earns 2% cash back on all purchases and you have the option to redeem rewards for statement credits, for example, you could use your cashback to get the equivalent of 2% off your credit card bill.
If you have a stash of rewards built up, you could even use them to pay for some holiday gifts to help keep your budget in check. After all, many rewards credit cards let users redeem for cash back, statement credits, gift cards and even merchandise.
Just remember that credit card interest can come back to bite you if you don’t pay your credit card statement balance in full each month. For the most part, rewards cards only benefit you if you pay your statement balance off each month with no exceptions.
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Use buy now, pay later services with caution
Some buy now, pay later services can help you spread out the pain of holiday purchases without an additional cost. As one example, a BNPL company called Klarna lets shoppers pay off eligible purchases interest-free over four fixed payments.
Just keep in mind that BNPL agreements may make it easier to overspend, and that late payments can result in additional fees and charges.
➤ LEARN MORE:What are pay-over-time credit card plans?
Look into zero-interest credit card offers
Instead of using buy now, pay later offers to cover holiday expenses, it can make sense to look for a new credit card that offers 0% APR on purchases for a limited time. Many cards do offer this perk with the option for zero interest on new spending for up to 15 or 21 months. Some even offer rewards for spending at the same time without even charging an annual fee.
Just remember that these zero-interest periods won’t last forever and that regular APR will kick in once the promo ends, raising the cost of any balances that remain. If you use a 0% APR credit card for holiday shopping this year, make sure you have to plan to pay your purchases off before interest charges come into play.
Frequently asked questions
What is the best way to avoid credit card interest during the holidays?
Avoid credit card interest during the holidays by only charging purchases to a card you have the cash to cover right away. Also, pay your credit card balance in full when your statement arrives to avoid interest charges.
How does a 0% APR credit card work during the holiday season?
Charging holiday expenses to a 0% APR credit card over the holidays can buy you some time to pay off holiday bills without any interest charges accruing. However, zero-interest offers are only in place for a specific amount of time, after which cards charge the regular variable APR on remaining balances.
The bottom line on avoiding credit card interest during the holidays
Whether you’re buying gifts for your whole family this year, you’re hosting a big holiday party or you’re charged with both, there are advantages that come with using a credit card to foot the bill. The best credit cards let you earn some type of rewards on spending, whether that’s cash back, flexible rewards or travel points of some kind. Some also come with 0% interest offers that can help you avoid interest as you pay off your balance, plus consumer protections like extended warranties and purchase protection against damage or theft.
On the flip side, there’s a price to pay if you use credit cards for holiday shopping without a plan to avoid credit card interest. That price is always high, but this is especially true right now due to the higher interest rates we’re experiencing across the board.
If you’re wondering what is the best strategy for avoiding credit card interest this year, take our advice. Use your card for holiday shopping if you have a budget in place and a plan to maximize cardholder benefits, but only if you can pay off your balance before interest hits. If you wind up with holiday credit card debt that won’t go away, you could be dealing with the consequences well into the new year and beyond.
➤ LEARN MORE:How to choose the best credit card for holiday shopping
