5 Ways to Dodge the Holiday Credit Card Hangover

By Eva Norlyk Smith, Ph.D.

It is as certain as death, taxes, and Florida hurricanes in the fall: Come January, millions of consumers will be struggling with a bad case of holiday hangover as the pile of unpaid credit card bills begins to heap up.

For stores, credit cards and retailing is a match made in heaven. Retailers are experts at stacking their shelves with not-to-be-missed wonderful stuff that we never knew we wanted, and then to seal the deal with offers that can’t be refused. Credit cards are willing partners in this devil’s bargain, providing us with the magic wand to instantly make our newfound dreams come true. A quick swoosh and swipe, and you and your new purchase are well on your way to happily ever after.

Rinse and repeat. By the time January rolls around, if you’re like most consumers, you have long since forgotten just how much you charged. And this, of course, is the time when the pied piper has to be paid.

Will this year be different? Numerous consumers are determined to make it so. According to a survey of more than 3,800 consumers by the National Foundation for Credit Counseling (NFCC), more than two thirds (68 percent) of holiday shoppers plan to leave their credit cards at home and use hard, cold cash for Holiday shopping this year; only 22 percent said they will use their credit cards, and of these, more than half said they would not spend more than they would be able to pay off the bill in full when it arrived.

How well will our Holiday resolutions bear out? Unfortunately, the psychology of credit cards, researchers tell us, is such that it predisposes us for spending. Credit cards separate us from the pain of paying. It delays that agonizing moment when we actually have to part with money, and shifts it into some remote, abstract future. Using credit cards also makes it more difficult to keep track of how much you’ve spent. Not surprisingly, research has shown that people paying with credit cards tend to spend more; it’s just a fact of life.

In short, to prevent your resolve to dodge Holiday overspending from going the way of your January weight loss resolutions, you may need to pave the road with more than good intentions. Here are five tips to prevent overcharging on your Holiday shopping this year.

1. Leave your credit cards at home. When you go shopping for the Holidays, bring cash or your checkbook, but leave your credit card at home. If you’re used to shopping with credit cards, you’ll be surprised how many temptations you’ll be forced to pass up on when you only bring cash. With credit cards in your wallet, it’s almost impossible not to spend more than you intended to.

2. Plan your spending. Decide how much in total you can spend on presents and other Holiday expenses, and then create a budget for each category of expenditures: presents, food, entertainment, travel, and miscellaneous. If you already have the money you need to cover your Holiday expenses, simply track your expenses by category each time you go shopping, and subtract them from the total, so you always know how much you have left.

3. Borrow with caution. If you don’t have all the money needed for your Holiday expenses and have to borrow against future earnings, determine how much you can pay back in two to three months. Then create your Holiday spending budget based on that.

4. If you have to use your credit cards. Preferably borrow from a savings account or a home equity line of credit. If that’s not an option and you have to borrow against future earnings using your credit cards, don’t just bring your credit cards when you go shopping. Instead, if you can, make a 0% APR balance transfer into your checking account for the amount you have planned to charge to your credit cards for Holiday expenditures. Then bring some of that cash or use your checkbook when you go shopping. (Don’t take out a cash advance; these come with high interest rates and no grace period.)

Alternatively, bring your credit card, but track your charges in a portion of your check register. Write in the total amount you have decided to put on your card; this will be your starting balance. Then, each time you swipe your plastic, subtract the amount from the total. That way, you will always know where you are and won’t unconsciously overspend.

5. Use only one credit card. Use only one credit card, so you won’t lose track of what you’ve spent. Check your cards to find the one with the lowest rate; card issuers have hiked rates over the last twelve months, and the APR for some cards is well over 20 percent. Check your credit card statement or call your card issuer to ask about the current APR for your card.

Published: November 19, 2009