How to avoid the credit consequences of Christmas shopping

They both had pounding headaches and felt nauseous. Was this the result of an excellent holiday party? No, but it was certainly the result of their actions. Dick and Jane Johnson had just received their credit card bill with their Christmas spending. This can’t be right they thought. How could we have spent $3,200 on gifts this year?  After reviewing every purchase they realized that every charge was accurate.

Yes, the Johnson family loves Christmas, but they hate that credit card hangover. Mom and Dad want to make the holiday special, so each year they go out of their way and well beyond their non-existent budget to get their two kids and each other the gifts they’ve been dreaming of.  The Johnsons made no effort to plan for their holiday spending, and so had to put all their purchases on a credit card.


“What if we just pay the minimum each month?” says Dick. Their credit card — with an 18 percent interest rate — requires a minimum monthly payment that is the greater of 2 percent of the unpaid balance, or $25. Doing that will take 23 years to pay for the gifts and the interest paid will be more than double the cost of the gifts.

“I think we could pay $200 each month” stated Jane confidently. But that will take the Johnsons 19 months and $486 in interest payments. “But what about gifts for Christmas next year?” asks Dick.

The Wilson family of four, right next door, also enjoyed a great holiday season, but come the New Year, they’ll still be smiling. Here is the difference between these mythical — but entirely realistic — families.

The Wilsons calculated what they spent last Christmas, $2,400, divided that by 12 and, starting this past January, banked $200 per month. Then they shopped with their credit card to get the reward points, with the intention of paying off the entire balance from that holiday savings account after the first of the year.

And guess what? The Johnson and Wilson kids were watching. We can rightly assume that it was the Wilson kids who learned a healthy financial literacy lesson, while the Johnson kids almost certainly have picked up some bad spending habits.

Whether you are a family or an individual, this is the time of year when you can fall into the credit card trap. According to the Deloitte 2018 holiday retail survey, each adult consumer is expected to spend an average of $1,536 during the 2018 holiday season. According to CNBC, 2018 Christmas holiday spending is predicted to exceed $1 trillion for the first time ever. 

Holiday spending is a big part of our nation’s annual credit card payments. The Federal Reserve Bank of New York estimates that outstanding household credit card debt is $844 billion.

I believe that if you understand how credit works, and how your credit score affects your cost of using credit cards, you can financially weather the holidays and the rest of the year.

Our center’s studies on high school students and adults show that not enough Americans understand personal finance well enough to stay out of financial difficulty. Ironically, it is lower-income families and individuals that have the lowest personal finance IQs, and thus are more likely to misuse credit.

But you don’t need a Ph.D. in finance to understand simple math. If you go to this website, you will see that

And unfortunately, the average American will pay nearly $280,000 in interest on credit card debt over a lifetime.

But are you average? If you don’t know your credit score, you should find out, but if you slide the scale from excellent down to bad, you will see your interest payments rising dramatically — usually about double the cost.


For many Americans, the holidays can be frustrating or sad because they can’t buy all the things they see on TV commercials and websites. But they will only become more depressed if they succumb to the lure of seemingly easy credit.

To avoid this fate, families and individuals should create a holiday budget in January, then find ways to save for that year's holidays. Try to always buy when there is a sale. Some people start their Christmas shopping for next year the day after Christmas at the giant clearance sales.

The best gifts are not always bought at stores. Some of the most thoughtful gifts are handmade. I would love a book of coupons from my son to shovel our walkways or do some weeding in the garden. And if you have to use that credit card, make sure you don’t spend more than you can pay in full when the bill comes.

John Pelletier is director of the Center for Financial Literacy at Champlain College in Burlington, Vermont.