Avoid Credit Card Debt During the Holidays

Does this scenario sound familiar? You use credit cards to do your holiday shopping, promising yourself you'll pay the debt off within two or three months. Six or eight months later (or more), you're still paying, and those items that seemed like such bargains end up costing you 10 to 20% more than you thought, due to credit card interest.

For many Americans, this debt pattern is repeated year after year. Personal finance experts call this the "holiday hangover." There are times when incurring credit card debt makes sense, but holiday gift-buying is not one of them. Using credit cards often leads to impulse spending, overspending, and increased debt.

A better approach is to save small amounts of money throughout the year in a special holiday gift fund, make a list of all the people you'd like to give gifts to and how much you can afford to spend on each one, and pay cash. When the cash is gone, you're done shopping.

If you find it difficult to save money throughout the year, join an old-fashioned Christmas Club, still offered by smaller community banks and credit unions. You put so much a week (a manageable amount), often deducted automatically from your paycheck, into a special Christmas Club account at your bank. The account usually earns interest at the regular savings account rate. In October, November, or December, the money gets transferred to your regular checking account and you're ready to go shopping!

See Page Two for four tips for avoiding a financial holiday hangover (overspending).