Beware of holiday credit card debt traps

Category: Credit Card Debt Published: Monday, 28 December 2015 Written by Super User

With the holidays comes spending; for some, that can mean the accumulation of credit card debt. 

According to a survey, 20 percent of Americans say they will be in debt forever. And CardHub's 2015 credit card debt study recently found that consumers racked up $21.3 billion in new credit card debt between July and September. 

Former Barclays bank executive Nick Clements--who founded MagnifyMoney, an online financial education site for consumers, and has worked and spoken in Chattanooga--came up with a list of tips for consumers who want to avoid credit card traps. 

He specifically addressed store credit cards.

After all, it can be tempting when youre at the register and the clerk says, Would you like 10 percent off on todays purchase? All you have to do is sign up for the store card. It only takes a few minutes.

But Clements said that clerks are counting on shoppers spending more with the card.

What they are counting on is whatever you spend that day, youre thinking, This is great. Its a license for me to spend to save, he said. 

But to make store cards work for you, planning is important, he said. 

Clements used to run a large credit card company, so he knows insider secrets. 

In addition to hoping that consumers will spend more, credit card companies generally have to pay a lot of money to retailers to get the store deal. And they have to make it up somehow--usually with high interest rates, regardless of a persons credit score. 

The interest rates on store cards are outrageously high, he said.

But it is possible for consumers to make the cards work for them, he said. 

For example, he said:

You can get a good deal. I once moved into a new house. I was very tactical: I went shopping on a day with deep in-store discounts ... and I applied for a credit card that had a 10 percent discount for purchases made on the day. Because I knew I would be spending more than $2,000, the savings (more than $200 for the credit card purchase alone) was a great deal. And, most importantly, I paid the balance in full at the end of the month. I had planned my purchase in advance and used the store card offer to save more money. That is the only way to get a good deal.

He also noted that applying for the card means a hard inquiry will hit your credit report and your score. That isnt a major impact in many cases, so he said he doesnt want to scare people. 

If you know you arent going to buy or refinance a home within the next year or so, the inquiry shouldnt be too big of a problem, he said. 

Click here to see the rest of Clements tips to avoid credit card pitfalls. 

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