How to avoid racking up credit card debt during the holiday season

Amid the busiest shopping season of the year, financial experts are warning shoppers to think twice before pulling out those credit cards. 

With two-thirds of Canadians planning to charge their holiday purchases to a credit card, BDO Debt Solutions is cautioning consumers to avoid that type of debt.

That’s because several surveys show spending is expected to increase more than 30 per cent this holiday season, surpassing pre-pandemic levels. Surveys also show that 66.1 per cent of Canadians plan to charge this money to a credit card, says BDO vice-president Marie Kozlowski. 

“We all know that Christmas puts a lot of pressure on folks who are expected to spend,” she says, adding people are feeling extra generous this season following two years of the pandemic. 

The downsides of using your credit card during the holidays 

BDO’s recent Affordability Index shows the pandemic is eroding the standard of living of many Canadians.

Among those who carry debt, two-in-five accrued additional debt due to the pandemic. 

One-quarter of Canadians incurred new types of debt for the first time during the pandemic, and credit card debt is the most common. One in ten say they are now carrying a balance for the first time.

That’s one of the reasons why Kozlowski is concerned about the number of people who plan to spend money on their credit cards for holiday shopping. 

It costs more than you think 

“Credit card debt is the most expensive type of debt that you can have. Carrying a balance on your card at the end of the month, depending on the credit card, you could be looking at 18 to 20 per cent interest,” she says, adding cash advances are even more expensive upwards to 25 per cent. 

“And that doesn’t include the cash advance fees.” 

Kozlowski says that another downside of using credit cards is that when consumers max out their card and carry a high balance, it harms their credit scores. 

She also points out that some credit card companies show you how long it will take to pay off your debt, but as the amount charged increases, so too do the monthly payments. 

Tips to avoid the vicious cycle 

Shoppers should try to avoid getting wrapped up in the commercialism of it all by determining what you can afford to spend beforehand. 

“I know this is boring for most people, but create a holiday budget and stick to it,” Kozlowski says, adding the stats show that 14 per cent of Albertans polled admit they don’t have a budget at all. 

“People need to determine how much they can afford to spend, including everything from gifts, decorations, groceries, travel — and use debit instead of credit.”

If people need to use their credit cards, she cautions them to try to avoid spending more than they can afford to pay the next month, or using the cards with the lowest interest rates. 

Make a list, check it twice 

“Planning what gifts you’re going to give people is also a really good idea. Sometimes you end up with more gifts and more expensive gifts than probably was realistic,” she says. 

“Have a clear idea of what you’re looking for. Give yourself time, avoid last-minute shopping, and try to avoid spending hours online shopping where you’re definitely going to overspend.” 

It’s all about making a list and checking it twice, Kozlowski adds. 

“Often, you don’t need to buy all the gifts that you think you need and you can talk to your family and friends about downsizing either in gifts, or the value of the gifts. Many people are experiencing financial challenges.” For those struggling to manage or unable to repay their debt, a Licensed Insolvency Trustee such as BDO Debt Solutions can discuss formal debt solution strategies.