Credit counselors warn against holiday debt temptations

Consumer households will spend on average $800 this Christmas holiday, according to the National Retail Federation.  But for many that is money they will charge or defer payment well into 2015.

Plenty of consumers are entering the biggest shopping season of the year ill-prepared. For some, the ghosts of Christmases past still haunt them in the form of unmanageable credit card debt, according to Gail Cunningham, spokeswoman for the National Foundation of Credit Counseling.

“For the many Americans who struggle to meet daily living expenses, the thought of the holidays approaching brings anxiety instead of joy,” Cunningham said. “The pressure to purchase can be overwhelming, causing even the most well-intentioned to take on additional debt.”

Credit counselors warn that deferring payment to 2015 may seem like an attractive option for many, but unless they expect more cash flow after the new year, they could find themselves struggling with the hangover debt. Counselors said they routinely see an uptick in consumers seeking credit counseling services in the first quarter of the year after they have maxed out credit cards, or worse, taken payday loans to access short-term cash.

“At least two things point to consumers spending more than they can afford this coming Christmas season. It is estimated that Americans will spend 4.1% more this year for Christmas than in 2013. This is the highest estimated increase in spending for this season since the recession which began in 2008. In addition, Americans consumer confidence has reached the highest level since 2007. When the American consumer is confident in the economy they will spend more money based on a positive perspective of the future,” said Dr. William Bailey, a consumer finance advocate in Fayetteville.

He said for the last six months consumers have added hundreds of millions of dollars to the credit cards. Credit card debt now is now approaching $1 trillion. Mortgage is the first level of debt followed by student loans today. Credit card debt ranks third but is increasing.

Bailey said stronger optimism about the American economy and relative job security will probably lead to higher than affordable spending on Christmas gifts. He has witnessed some pent-up sentiment like, "I deserve to spend more this Christmas for myself and my family." 

“Many people may have held back spending money on Christmas for several years. I suspect some of these have felt that they have not provided sufficient gifts for their children. This could be the year to make up for that. As a result many people will likely overspend due to these feelings of deprivation,” Bailey added.

Cunningham said consumers don’t have be haunted come 2015 if they spend wisely this holiday season. To help people find money for holiday expenses and avoid creating debt, the NFCC offers the following tips:
• Second job
Consider a second job for the holiday season. Even a 20-hour-per-week job can net hundreds of dollars by year-end. It may not sound appealing to take on a second job, but remember that debt is its own burden.

• Sell items
Look to sell unwanted items online to generate some extra money. This can help clear the house and garage of clutter and provide some added cash.

• Free gifts
Look for free ways to buy. Now may be the time to use any gift cards that have been saved. Check out how many reward points have been earned through credit cards. To maximize the points, evaluate making purchases through the card’s online partners. If using a cash-back card, consider redeeming the money available.

• Reduce expenses
There’s a finite amount of money available so when spending in some categories increases, it means that spending in others will have to decrease. Make a conscious decision where to temporarily eliminate or reduce spending to make money available for holiday purchases. Many households are already feeling some relief at the gas pumps amid lower gas prices in recent weeks. The cumulative value to economy is $1 billion in spending power for each penny per gallon saved. While consumers are happy to see the lower fuel prices, multiple surveys indicate consumers don’t plan to spend that extra money on Christmas gifts.

• Consider re-gifting
A perfectly good item that isn’t liked or used benefits no one sitting in a closet gathering dust. It could be just the gift someone else has been hoping for, consider re-gifting.

Cunningham said if consumers are forced to charge expenses this holiday season, she suggests putting it all on one card and then committing to repaying that debt in the first quarter of 2015. Doing this will not only avoid paying excessive interest on the debt, but will prevent the holiday spending from being co-mingled with existing debt, and allow a more comprehensive picture of the spending.

“Looking forward, resolve now to have cash available for 2015 holiday spending,” she added. “Total the 2014 expenses and divide by 10. Commit to saving that amount from January through October, making the first gift of the 2015 holidays one to yourself – a debt free holiday season.”