Home > Managing Debt > How Much Will Your Holiday Debt Really Cost You?

Comments 0 Comments

Last year, the average holiday shopper spent $407 between Thanksgiving Day and Sunday, according to the National Retail Federation, but that’s sometimes just the beginning of end-of-year spending sprees.

Let’s start with a simple scenario of how much this could really cost: You only spent that $407 and finished your holiday shopping during the Thanksgiving weekend, and you put all your purchases on a credit card. You have a few options: Pay the balance in full when it comes due, make minimum payments or choose another amount to pay each month, until the bill is satisfied. That $407 could end up costing you considerably more in accrued interest and take more than a year to pay off.

For example: If you have a credit card with 15.9% APR and you only make a $25 minimum payment on your balance you would still be paying for this year’s holiday gifts two summers from now. Using our credit card payoff calculator, that payment plan comes out to $462 with interest over a year and seven months. If you have a low credit limit on that card, you may also experience a drop in your credit score, because until you pay off the balance, your credit utilization ratio may be high — it’s one of the most influential things in determining your credit scores. (You can check your credit scores for free on Credit.com.)

Increasing that payment from $25 to $50 a month saves you nearly $30 and takes only nine months. Still, that’s a long time to pay off a somewhat small credit card balance. You’re probably going to continue your holiday spending after Thanksgiving weekend, too, so your credit card bill will likely exceed $407. Perhaps you spend $1,000 on that credit card — it would take you nearly five years to pay it off, making only $25 minimum payments, and you will have actually spent $1,434 in the end. It’s mind-boggling to think about how five more holiday seasons will come and go before you pay off 2014’s gifts, and you’ll probably owe even more, if you continue financing holiday spending on credit cards.

That’s just one example: You have to consider how your credit score factors into the true cost of your holiday spending. With a low credit score, your credit card interest rates may be higher — retail or rewards cards definitely have higher rates, so avoid carrying balances on them — meaning you’ll pay even more for those purchases, and it will take longer to pay off the credit card debt. In turn, high balances may keep your score low and jeopardize your ability to access other forms of credit at low rates. It’s a costly cycle.

Credit cards can be great tools for shoppers, but as you think about your holiday spending this year, make sure you know how you plan to pay for it and understand how it will impact your overall finances. You can get a good idea of how much your debt may cost you over your lifetime using this free calculator, which is a good way to keep your spending in check.

More on Managing Debt:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team