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With the holidays just around the corner, many Canadians are starting their Christmas shopping, ready to shell out hundreds of dollars to surprise loved ones with the perfect gift. Over 50% of holiday purchases by Canadians last year were made using credit cards and according to Abacus Data for the Canadian Bankers Association, yet only 60% of Canadians pay their credit card balance in full each month. That means many are paying a lot more for their Christmas gifts than they think.
A lot of people make purchases during the holidays and then end up paying high interest rates every month for the rest of the year. Those gifts wind up costing a lot more than the ticket price. Add the interest accrued to the original cost of the gift, and suddenly that gift doesn’t seem so affordable.
The average Canadian spent $888 on Christmas shopping in 2014. If that number remains the same for the holidays this year, those who don’t pay their credit cards in full could find themselves owing a whole lot more than they budgeted for.
If left on a credit card for 90 days with a typical interest rate of 20%, that $888 would actually cost $917.76. Six months on a credit card would leave those gifts costing $940.51. An entire year of making payments would cause gifts to cost a staggering total of $987.11. And this all assumes that you make the full required payment each month, not just the minimum. Minimum payments will cover the interest only and make the total cost of $888 climb even higher. Let’s say that you can only afford to pay $50 per month on that card. Now that $888 purchase will take you 21 months to repay and cost you a total of $1059.75.
Here are some popular Christmas gifts also show how fast the costs can add up:
You buy your son/daughter the hottest Christmas toy of 2015, the Sphero BB-8 Droid (Retail $239.46)
If you leave it on your credit card for 90 days: $247.47
If you leave it on your credit card for 6 months: $253.59
If you leave it on your credit card for 1 year: $266.14
You buy your dad a sweater (Retail $25.99)
If you leave it on your credit card for 90 days: $26.86
If you leave it on your credit card for 6 months: $27.53
If you leave it on your credit card for 1 year: $28.89
You buy your mom a Kindle (Retail $139.99)
If you leave it on your credit card for 90 days: $144.68
If you leave it on your credit card for 6 months: $148.27
If you leave it on your credit card for 1 year: $155.62
You buy $20 Starbucks gift cards for 5 of your friends (Retail $100)
If you leave it on your credit card for 90 days: $103.35
If you leave it on your credit card for 6 months: $105.91
If you leave it on your credit card for 1 year: $111.16
Consumers need to be even more conscious of their spending this shopping season. Use cash, set a budget and be disciplined. Many are managing their interest charges for now but some are delaying the inevitable, allowing debt to snowball especially over the holidays. Come January, many individuals unable to meet their debt repayment obligations from holiday spending.
If you are already experiencing unmanageable debt accumulated from previous holiday seasons or due to other circumstances, contact your local Trustee for a free, no-obligation consultation. A fresh start is just around the corner.
Donna Carson is a Bankruptcy Trustee in Calgary. To learn more about how we can help you manage your holiday spending or how MNP Debt can help you, contact any of our local offices at:
1500, 640 - 5th Avenue SW, Calgary, AB, T2P 3G4
T: 403.538.3187 F: 403.537.8437
2323 - 32 Avenue NE, Unit 212, Calgary, AB, T2E 6Z3
T: 403.538.3187 F: 403.537.8437
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