SAN ANTONIO — Holiday debt can become the ghost of Christmas past, haunting shoppers for years to come. Higher interest rates mean bigger payments for longer periods.
“I’m suggesting to everyone if you’re on a really tight budget to dial it back. We don’t need to go overboard,” said Trae Bodge, a smart shopping expert with AARP.
Overspending can cost you. LendingTree data shows last year holiday shoppers had an average of $1250 of debt at 19 percent interest with a $50 minimum payment. That cost them about $337 in interest over 32 months. That same amount this year with a higher interest rate of 22 percent means it will cost $407 in interest over 34 months. That means it will take two months longer and $70 more to pay off.
Save on credit card interest by transferring your balance to a 0 percent interest rate card, if you qualify. Understand what the fees for transferring are, when interest will be charged, and how much it will be. You can also call your credit card and ask for a lower interest rate. A LendingTree study found 80 percent of people who requested a reduced interest rate were successful, but few people ask.
Alternatives include Buy Now Pay Later. These services break down payments into four equal, interest-free payments. They are easy to get and users are approved almost instantly. Yet, be aware payment schedules for Buy Now, Pay Later services are more frequent than credit cards.
“Buy Now Pay Later loans require payments every two weeks and that’s different from what we’re used to with car payments and credit cards and mortgages where it’s typically paying once a month,” said Matt Schulz, a credit card industry analyst for LendingTree.com.
It is important to make sure you will have the money to make the payments. Late payments to Buy Now, Pay Later services can hurt your credit. Having too many Buy Now, Pay Later payments can be difficult to manage. Plus, returns can be difficult when you use Buy Now, Pay Later. You may still need to make payments after you return the item.
Another option can be store credit cards but interest rates for them are often higher than traditional credit cards. LendingTree data shows regular credit cards on average charge 22 percent interest. Store credit cards charge 26 percent. That means you will pay an extra $60 on a $1000 balance with a $50 minimum payment.
“They tend to have higher interest rates, even than other types of credit cards and your average, everyday, regular credit card already has sky-high rates,” Schulz said. “If you’re somebody who carries a balance regularly, a store credit card probably just isn’t for you because those interest rates are so high,” Schulz said.
Yet, store credits do often offer discounts and rewards. They are best used if the balance is paid off monthly.
So like Santa, make your list but include alternative presents to give.
“Options are important just in case you can’t get your favorite gift,” Bodge said. “Then if a great deal appears and it applies to something on your list, you can count on that.”
She said she is seeing discounts now between ten and 70 percent, so it is important to track prices and to shop around for the best deal on any item.
Other ways to save on your gift list include: Using coupons, cash back apps and loyalty programs at your favorite stores.