Holiday Debt Traps To Avoid

If you are like most of us, money  is tight; which makes spending for holiday gifts more difficult this year. Although finances aren’t what they used to be, it seems like everyone’s gift list is as long as ever before. Credit card companies know that the holiday season is the biggest retail season of the year, which is why they get crafty with their ways of enticing you to spend more than you can afford. Before you enter the new year with an overwhelming debt load, consider the following debt traps to keep your family out of financial crisis in 2012.

Bonus Rewards

Besides the fact that using credit cards for holiday gifts is a bad idea to begin with, many credit cards throw in extra offer to encourage your spending habits. Bonus rewards are given out for purchases and can be traded in for other items. Many credit card companies will offer double or triple bonus point rewards during the holiday season in hopes of luring you into using your credit card for purchases.  So the question really becomes, is the $50 cash back or that “free” MP3 player really worth the $500 you charged to your credit card with a 15% interest rate?

Cash Back

While most people never think about using the cash back option offered by their credit card, it may become more appealing around this time of year. The problem is that taking out a cash advance, or cash back loan, on your credit card often comes with a much steeper interest rate than a traditional purchase. Most people have no idea that getting cash back or using convenience checks from their credit card company can cost them nearly double in the amount of interest on the loan. Viewing it this way demonstrates that the cash you are receiving really isn’t cash at all and is only worth about half of what you are paying to get.

Store Credit Cards

Another popular holiday occurrence is instant retail credit card services. Retail stores will begin to increase their offers for in-store credit cards as the holidays approach, hoping to entice you into saving 10-15 percent on a purchase by applying for an instantly approved credit card. Once again you will find yourself paying nearly double the interest on a purchase than a traditional credit card. Ever wonder why the retail stores don’t offer these cards year around, or why you weren’t approved before the holiday season? It is something to think about.