A recent study estimates over $900-billion dollars will be spent this Christmas with the majority of that going on a credit card.
"Credit cards are more dangerous this year than ever," Brian Bolton, professor of finance at UL, said. "Interest rates have been increasing and will continue increasing."
Bolton said the trap that most people fall into is just making the minimum payments on that card.
"That minimum payment is designed to get you to extend that balance as long as possible," Bolton said. "The minimum payment doesn't help you, the consumer. the $500 you put on the card this year will be up over $600 next year. The spending you put on a credit card this year, try to exercise will power, try to exercise your strength to pay it down into 2023 so those interest rates don't become more of anchor and more burdensome."
Bolton said, if you put a thousand dollars on your card in 2021, it will look more like 12 to 13 hundred in 2022. If that is extended into 2023--it could rise to 16 or even 17 hundred dollars.
"That compound interest is great when it's working for you and can be destructive when it's not," Bolton said. "You want to get to a situation where you flip that and avoid putting charges on a credit card that are going to be subject to interest on interest and interest on interest. You want to take ownership where you can be receiving that in the long term."
One way to take ownership is to actually look at your bill, understand what is on there, and what impacts it will have on your future.
"Sitting down and looking at that statement and really taking ownership and understanding that if I spend $1000 in 20-21, now I owe 12 or $1300, what's that going to look like and how am I going to pay that down. It's going to be a little shock therapy but necessary."
Bolton said, while it may be too late to change those spending habits for 2022, 2023 is right around the corner and what better way to kick off the new year then with a new financially responsible you.
