Minimize Credit Card Interest on Holiday Purchases

If you're like me, there is a good chance that you will spend more money during November and December than you do in any other two (or three or four) months of the year. Between shopping, travel, and entertaining costs, holiday expenses add up quickly. If you've budgeted for this, then there is nothing to worry about. However, if you will be relying on credit cards to pay for your holiday expenses, you may want to develop a plan that will limit the cost of using credit.

In a perfect world, this plan would simply consist of paying off your purchases during the 25 day interest free grace period most credit cards offer. If you can manage this, then you are in good shape. If, on the other hand, you think you will need months to pay off your holiday purchases, then it may be worthwhile to consider getting a new 0% APR credit card.

With a 0% APR credit card, you get between six months to one year to repay your credit card debt before a higher, standard interest rate kicks in. (Ideally you'll want to get a 0% rate for a year to ensure you have enough time to pay off new purchases.) During the 0% period, you are charged no interest and all of your payments will go towards reducing your debt.

While using one of these cards can save you $50 to $100 in potential interest charges that you would otherwise rack up on a high interest credit card with just $1000 of new credit card debt, having a new low cost line of credit can be dangerous in the wrong hands. The key is to use this type of card as a short term loan and not spend more money simply because you have more credit.

Ultimately, the best way to handle taking on new debt for the holidays is to create a monthly plan to repay your outstanding balance before the 0% rate expires. Thus, if you spend $1000, set aside $100 a month to pay down your credit card. If you handle your new debt this way, you won't find yourself paying for 2010's presents in 2012.

For more information and ideas on managing expenses during the holidays, see CardWisdom's Holiday Guide to 0% Credit Cards.

Photo Credit http://www.flickr.com/photos/pagedooley/

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