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November 2010 - Cash or credit card this holiday season?

Cash or credit card this holiday season?

☳ by Adam Aspilla

Holiday Season (Christmas season) is the time of the year where we spend so much money to buy gifts for our love ones.  And as a result, many go financially broke during this time of the year because of overspending.

Buying gifts is good, for it is a demonstration of your love and care for your loves ones. However, if it would lead you a financial ruin, it does not serve you any good at all. 

Ideally, buy gifts which are within your budget. Meaning the money you use to purchase gifts is your money not being borrowed. The value of a gift does not matter so much but it is the act of giving that count much.

There are two ways you can buy gifts: first, you could pay cash or debit card, and second, you could pay by credit card. 

If you want to spend within your means pay cash. In that way, you will not overspend for you will stop buying when you run out of cash.

On the other hand, you may use credit cards to pay for your purchases. However, the danger of using credit cards is you may overspend, that is spending beyond your means. And the consequence, you will not be able to pay the full amount of your purchases when it is due. If that happens, credit card companies will charge you exorbitant interest up to 28 percent per annum. 

With high interest rate, it is possible by the next Holyday Season you still are unable to pay off the entire amount you owe on your credit cards.

It is okay to use credit cards, provided you could pay the amount owing in full on the due date of the bill. It makes sense to use your credit card that way, for you are not paying any interest on it.

It is worth mentioning that indiscriminate use of credit cards is a common cause of financial problem. You maybe able to pay the minimum payment of your credit cards on time and you feel good about it. However, even if you are up to date on your minimum payments, when you are loaded with debts, your credit rating is no longer good.

Proof of that is when you apply for a loan, line of credit, or a mortgage, you may be declined on the ground your debt service ratio is over the limit. What it simply means, is your income is not enough to pay your outstanding debts.

Knowing the adverse effect of unwise use of credit cards, it is important to make a prudent decision to whether use cash or credit card this Holiday Season..


Adam Aspilla is a Senior Financial Counselor of the Debt Clinic of Canada Inc. and the author of the book, You Can Negotiate All Your Debts. He also writes a biweekly column, “What Matters In Life” in “Taliba Newspaper. For free initial, professional and confidential consultation, please call 905-306-7572.