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How Much Is Christmas Going to Cost You?
By JLP | December 20, 2006
If you charge this year’s Christmas, how much will it cost you? Take a look at the graphic below, which assumes total charges of $1,500 on a card with a 12% APR. According to my numbers, if you pay 11 payments of $135, and one payment of $113, you can pay it all off in 12 months. You will end up paying $98 in interest.
The problem with this is that unless you are budgeting (saving) for next year’s Christmas, you’ll have to pull out your credit card and start the process all over again. See how easily this can become a cycle? So how do you get out of this cycle? Well, you could…
1. Pay off the credit card and save for next year’s Christmas simultaneously, provided you have enough cash flow to do both.
2. Pay off the credit card and pare back on next year’s Christmas so that you can eventually pay cash for Christmas.
For a lot of people, option 2 is the only reasonable way to go. The problem is: how do you cut back on your Christmas spending? I think the easiest thing to do is to create a Christmas budget. A budget will help reign in spending on all the extra stuff that we seem to buy. If you look at your budget and see that you are still going to spend too much, perhaps you could talk with your extended family and tell them about your goal to pay cash for Christmas. They might agree to a less expensive gift exchange or even skip the gift exchange for a year. Of course, they won’t know unless you have a conversation with them.
The advantage of paying for Christmas with cash through a budget is that you can purchase gifts throughout the year if you choose. So, if you know someone wants something in particular and you see that item on sale in June, you can pay cash for it then and save it for Christmas. A budget gives you piece of mind because you know what you can afford to spend.
Try it! It works.
Oh, and if you ONLY pay the minimum payment each month, you’ll still owe over $1,300 in 12 months (at 12% APR):
So, please pay more than the minimum payment each month!
Now, tell me… What are you doing that works?
Topics: Budgeting, Credit Cards |