Here Comes Credit Claus: Avoid Retail Credit Cards This Season

Date posted: Dec. 16, 2016
Here Comes Credit Claus: Avoid Credit Cards This Season

Photo Credit: Gina

As the holiday season approaches, your Christmas spending for family and friends has probably gotten well underway, and you may be coming to the end of the money you budgeted to spend.

When this happens, it can be all too easy to turn to one of the credit sources offered by stores: retail credit cards.

Companies like Sears, Canadian Tire, or WalMart offer branded credit cards, which are known as retail credit cards. They often offer an enticing discount up front, which makes it tempting to sign up when making your purchases, especially if you are running low on funds.

Unfortunately, these credit cards come with several drawbacks that should make you wary of signing up for them:

First, many retail credit cards have very high interest rates between 19.99% and 29.99%. In fact, most of these credit cards will have a specific interest rate on purchases, and a higher interest rate on cash advances and balance transfers. For example, the Tim Hortons Double Double Visa Card has an interest rate of 19.99% on purchases and 22.99% on balance transfers and cash advances.

Second, these credit cards are advertised as a way to make your Christmas spending more financially feasible, which can make it tempting to take on new debt. Taking on extra debt at Christmas is not a great idea, but covering the debt with a retail credit card will leave you paying off the balance for months.

For example, if you signed up for a retail credit card at 19.99% interest to cover $500 in extra Christmas spending, and only made the minimum payments to pay it off, it would take you six years and eight months. You’ll also pay an additional $365.23 on top of the original balance.

That’s a gift that keeps on giving for years!

Third, many of these credit cards just aren’t very good credit cards. Most don’t offer rewards or points for your purchases, and the ones that do have weak points systems that don’t earn you much over time. If you are going to sign up for a new credit card, you should use an online credit card comparison tool to find the one that is best for you, not sign up for one at the spur of the moment.

Fortunately, there are several alternatives to putting your purchases on a retail credit card.

First, if you haven’t yet overspent or run out of your Christmas budget, you should carefully plan your spending and make sure you have enough cash to cover your gifts.

If you don’t have enough money to cover your Christmas spending, you should consider ways to reduce how much you spend. Either purchase fewer gifts or participate in fewer events. Be honest with your friends and family about it. Tell them that your funds are limited this Christmas, so you won’t be able to participate like you usually do. They will understand!

Alternatively, you could look for ways to reduce your Christmas spending by hand making your gifts.

Finally, if you absolutely must spend the money, find sources of funding other than high-interest retail credit cards. Ideally, you could pull cash from your bank account, even if it is from your emergency savings, and replenish it after the holidays. Or you could pull from a low-interest source of funding like a line or credit or a family member.

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