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How to avoid holiday debt traps

CHICAGO — As the holiday shopping season expands and retailers make impulse buys ever easier via smartphones and otherwise, consumers have to be extra disciplined to avoid money trouble.

Unfortunately, many will take months to pay off the goodies they bought for loved ones or (shh) themselves at door-buster deals and other special offers.

Among the potential debt traps for the unwary this year:

• Some credit card issuers have mailed blank checks for their customers to use, just in time for the holiday shopping crush. Interest rates on these cash advances can run 20 percent or more if you don't pay off your card within the prescribed period.

• Card issuers increasingly are attaching spending requirements to generous rewards and bonus offers they dangle ahead of Black Friday, making you spend with their card in order to earn them.

This doesn't mean you have to shun all holiday sales in order to remain financially responsible.

Here are some tips to keep spending under control and debt, if any, to a minimum:

1

Have a plan

Make a list of who you're shopping for, what items you hope to find and how much you intend to spend on each person. Stick to it! Your plan should call for you to start your shopping online, at least to compare prices and look for deals before you head to the stores. Avoid impulse purchases. And don't wait until the last minute to start shopping; it's a sure prescription to spend more.

2

LIMIT CREDIT CARD USE

If you must use a credit card, put your charges on just one card — the one with the lowest rate if you carry a balance. Remove all other cards from your purse or wallet. Don't apply for store cards just to snag one-time discounts. The ideal approach is to not charge a single item unless you can repay in full when your next bill arrives. At least set a target date to zero out the balance before you run one up.

3

BEWARE OF SPECIAL CARD OFFERS

In addition to rewards and bonus deals, issuers are tempting consumers by offering incentives such as no-interest balance transfers, extra perks by meeting certain spending levels and increased cash back in specified categories. Resist the bait.

4

USE LAYAWAY

Take advantage of the resurgence of holiday layaway programs. Retailers from Kmart and Sears to Toys "R" Us and Walmart have lowered or waived fees this year that shoppers pay to participate in these interest-free, pay-over-time programs. With stores eager not to lose customers to the competition, debt-conscious consumers can snag gifts at attractive prices while not having to pay an extra fee just to avoid buying with their credit cards.

5

GET CREATIVE

Find it difficult to stick to a holiday spending budget? Give gift cards and make something personal to go with them. Or give experiences instead of "stuff" — perhaps a shared hike, nature outing or special home-cooked meal. Or volunteer together at a soup kitchen, homeless shelter or nursing home if your gift recipient doesn't want more material items, suggests Pamela Yellen, a financial services consultant and personal finance author. The gifts people remember the most, as she points, are often free.

How to avoid holiday debt traps 11/25/12 [Last modified: Sunday, November 25, 2012 3:30am]

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