Clark Howard: Holiday Debt – ‘Don’t fall for it’

With Black Friday just over a week away, many of us will be hunting for deals and paying with credit cards.

However, those bargains can end up costing consumers a lot more in interest.

It might seem overwhelming to dig yourself out of a mountain of debt, but it can be done.

Consumer Sami Johnson said, “I was 23 years old with $25,000 of credit card debt.”

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Johnson said she got hooked on store credit cards as a teenager. She used to work in retail and even pitched them to customers.

“Not one point did I mention to them about an interest rate. I said, ‘Do you want to save 20% on your purchase today?’” Johnson said.

However, store credit cards typically come with high-interest rates. Those high rates cause your credit card bills to snowball. Johnson said she finally realized she was in over her head.

“I’m paying out 25 different bills. What am I doing?” she said.

The average interest rates on credit cards are around 22.76% for new credit cards, according to WalletHub, and store credit can balloon to 36 percent.

Kate Bulger with Money Management International (MMI) said, “Now, even though they’re making that same payment every month, that balance is continuing to grow and grow.”

Bulger said those interest rates, along with higher expenses make it easy for debt to pile up. She said setting a holiday budget is key to avoiding a holiday spending hangover.

“In January, as those first credit card statements come in, that’s when we really start getting calls,” Bulger said.

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Johnson signed up with MMI to tackle her debt. “I had about 15 to 16 different store cards. So, I’d say half of them were able to settle. Half of them got the interest rates cut off, and half of them said to deal with it and pay us,” she said.

Johnson said she sacrificed spending on fun things such as eating out and managed to pay off her $25,000 debt in five years.

According to Bulger, on average, credit scores increase by over 82 points.

“Which is an incredible amount. And, for a lot of clients, about one in five consumers who are renting end up purchasing a home because they were able to pay off their credit card debt through a debt management plan,”, Bulger said.

Johnson said, “But there is hope to get out of it. As long as you have the right people in your corner and your team.”

Clark Howard says your whole goal needs to be avoiding the holiday hangover and when you’re at the register, and they are offering you instant store credit, don’t fall for it.