Four Ways to Avoid Credit Card Debt Especially During Holiday Seasons

Credit card debt is rampant with the arrival of each holiday season as the desire to chill out and have fun and make merry takes hold. It is indeed the season to be jolly, if not staying at home, make travel arrangement, buy many gifts for family and friends and make arrangements for the various parties one gets invited to. And of course, it is also the season when spending can go wild if not bridled.

Businesses usually cash in on the holiday seasons to maximize their sales and profits being a high season for them. They stock up, price up and smile all the way to the bank. Why? Because, they are very much aware that people will be less restrained with their suspending than at any other time. People easily forget the post-holiday season financial stress or even if they do, they vaguely keep it at the back of their heads. Nevertheless, it is possible to to ensure less or no stress. Success in this will be determined by how well you control three important factors: the manner in which that spending is financed, your increased rate of spending, and gauging clearly any heavy financial demands that follow in the subsequent month.

Financing Using A Credit Card

People often find they have not saved up enough for their holiday celebrations. Moreover, budgeting is an alien concept during this and spending can spiral out of control. To cover the inevitable shortfall in resources, the credit card is an obvious attraction. There are advantages to using the card to finance your expenditure including not needing to carry lots of cash around, giving you the temporary ability to spend beyond your current means, enabling you to have free access to about a month's credit and allowing you to track your expenditure.

However, the use of credit cards does carry with it significant dangers if it is not carefully controlled. Research indicates that spending could increase by up to 35% when using a credit card compared with using cash. Here are some key ways to help you guard against running into credit card debt trouble.

#1. Have A Spending Plan

Having a spending plan can help a great deal in controlling your expenditure. If your spending is going to exceed your income for the festive month, consider cutting intended festive expenses, or other expenses, to stay within your income. Although not readily apparent, a credit card can be useful in your spending plan create distortions in the and management of your finances especially if you stick to it for better monitoring purposes rather than spending both cash and credit. With a careless on non-adhesive plan,there is a danger that you will be uncertain whether or not you are living within your budget. It would therefore be unwise to begin using a credit card if you are not in control of your finances, that means using a spending plan.

#2. Checking Debt to Income Ratio

In managing your financial affairs, one of the key indicators to watch is your debt-income ratio. The use of your credit card adds to your in debtness. Factor in debt repayment as a percentage of your monthly after-tax income. A ratio of over 15% is becoming unhealthy. It is adviseable not to add more transactions to credit card debt that is overdue.

#3. Using Credit Card To Bridge Finance

Use of a credit card is ideally a means of short- term financing of your operations. That means settling any debt incurred using your card within days. Paying the minimum balance alone is not sufficient. If you are not confident that you can pay it off in full, you wound do yourself a huge favor by not using a credit card. Should you decide to go ahead and use a card, you need to be prepared for extra costs in interest and penalties associated with extended credit. This adds to your expenses, and you need to be ready to be ready to reduce other regular expense to accommodate this, otherwise you run the risk of creating ongoing hard-core debt

#4. Guarding Your Net Worth

Credit card debt incurred during the festive season is usually for consumer spending- paying for your holiday, buying gifts, entertainment, traveling expenses, etc and creates what is known as consumer debt. This kind of debt only adds to your liabilities, but contributes nothing to your assets. Your net worth is reduced to the extent of consumer debt incurred. Shrinking net worth is not good for your financial health. So do have yourself a happy holiday. But as you go about it, finance it in a way that gives you the comfort that you won't be debt-laden the following month and financially stressed.