“’Tis the season to be jolly, fa la la la la la la …” Ouch. The final month of the year is often characterized by gifts, joy and merriment. But, that generosity through the holidays usually gives way to buyer’s remorse and worry over debt in the new year. That remorse is often influenced by the way a person paid for the holidays. Spending largely on a credit card usually results in higher Christmas credit bills and stress, especially if you can’t pay them right away.
The Average Cost of Christmas
According to the stats, Christmas spending soars as high as $1,536 per person, per year. Despite what you might think, only one-third of holiday spending actually goes towards gifts. On average, presents account for approximately $510 to $550. The remaining $1,000 is spent on eating out, entertaining, festive clothing, decorations and holiday festivities, such as plays and musicals. Needless to say, Christmas is expensive.
But, you shouldn’t let your spending be a cause for concern so long as you planned it in advance. However, if you put even just half of the total on credit, you could cause yourself a lot of unnecessary headaches in the future.
The Cost of Christmas Credit
Say you budgeted $1,000 for all holiday expenditures: gifts, tinsel, meals and all. Mid-December, you realize it wasn’t enough, so you decide to use your credit card to cover the remaining expenses. At the end of the season, you rack up a $500 credit card bill, which isn’t bad, right?
If your credit card has an interest rate of 17.98% — which is average for a person with good credit — your $500 shopping spree will cost you an additional $99 in interest. Assuming you’re only making the minimum monthly payments of $25, it will take two years to pay off your single month of merriment.
Now, say you didn’t start saving early enough, and you put $1,000 worth of expenses on your credit card. Assuming you’re only making minimum monthly payments, it would take 28 months, and $226 in interest to pay it off.
Finally, say you didn’t budget at all for the holidays. You rack up $1,500 in credit card debt and plan to only make the minimum monthly payment of $45. It will take you 47 months and $595 in interest to reach a $0 balance. For many people, four years of debt and $600 in interest isn’t worth the short-lived joy of the season.
Incentives to Avoid Christmas Credit
Regardless of what you pay in interest, every penny you put toward interest is money wasted. If you exceed your Christmas budget by $500 yearly, that’s $100 a year you could be investing. While $100 may seem small, you could earn between $1,000 and $10,000 in interest at the end of a 20-year term, depending on the account’s interest rate. Now, imagine if you doubled that yearly investment; the potential savings might convince you to stick with your Christmas budget, even if it seems tight now.
Say you go over your Christmas budget by $1,500 every year, though (or you don’t budget at all). You may not miss the $600 in interest right away, but you will once you realize how much more you could have saved by using that money in a more concrete way, such as paying down your mortgage loan.
For instance, $600 put toward one year of mortgage payments shaves $8,121 and two years off your mortgage. Imagine if you did this every year. You could cut the cost of your home and your repayment term in half. With the holidays right around the corner, these types of savings and investment opportunities are things you should be thinking about as you start to decide your Christmas budget.
What To Do If You Have Already Amassed Christmas Credit Card Debt
You know what they say, hindsight is 20/20. If you’re still paying off last year’s Christmas debt, commit to staying on budget this year. Doing so can help you avoid racking up new and possibly costlier debt. As for paying down what you owe, you may need to take aggressive action so that you can start the new year on a fresh foot.
LoanConnect’s personal loan search engine can help you find an affordable debt consolidation loan in a matter of seconds. While it may seem counterintuitive to pull out another loan when you already owe money, doing so can actually help you save money in both monthly payments and interest. Submitting a pre-qualification application will have zero impact on your credit and, if approved, you can receive funds in as little as 24 hours. Learn more about our debt consolidation loans and how they can help you today.