More Green, Less Red this Christmas

This holiday season many people will be singing this familiar tune with their money:

On the first day of Christmas, my true love gave to me

A charge card in a fake tree . . .

and so forth until day twelve when . . .

On the twelfth day of Christmas, my true love gave to me

Twelve months of payments

Eleven line advances

Ten collectors calling

Ninety days same as cash

Eight checking boo-boos

Seven maxed out Visas

Six months zero interest

Five Visa checks

Four payday loans

Three loan extensions

Two percent back

And a charge card in a fake tree.

If you find yourself at the end of the Christmas season poorer than Bob Cratchit, there is a good chance your true love gave you one or more of these twelve dubious gifts. You may think these are good ways to ensure you have a carefree holiday experience, but all twelve are worse than your aunt's fruitcake. Here's why.

1. A charge card in a fake tree. Don't fall for the discount gimmick to sign up for a charge card. Department stores would not make these offers if they didn't know you will end up spending more money. If you save twenty-five dollars on an intro deal, but end up spending fifty dollars more money than you would have done spending cash, then getting the charge card was a bad deal.

2. Two percent back. Don't use credit cards for purchases thinking you are a wise consumer because you get two percent cash back or air miles or some other come-on prize. Consumers spend ten percent, twenty percent, even thirty percent more when using plastic rather than cash. How smart is it to spend twenty percent more to get two percent back?

3. Three loan extensions. When a lender gives you a holiday present of letting you skip a payment, cross them off your Christmas card list. Interest will continue to accrue during your payment-free month and you actually end up paying back more money.

4. Four payday loans. Payday loans may be convenient, but you can get better interest rates from a loan shark. You may not notice the cost because ten dollars here or twenty dollars there may seem like a low price to pay for a fast loan, but do the math and you could be paying five hundred percent interest or more.

5. Five Visa checks. Those courtesy checks that come with your credit card statements can be an enticing source of easy money. Sometimes the issuing bank will give you a sweat deal to encourage you to use these checks. Banks don't stay in business by losing money--they make money using this ploy and it's your money going in their pocket. I've got nothing against bankers--hey, I'm one myself! I just think most people would rather spend their money on loved ones instead of paying needless fees and interest to the bank.

6. Six months zero interest. Introductory zero percent interest credit cards don't encourage people to get out of debt. You have a false sense of financial sophistication. You're not the next Warren Buffett because you sign up for this deal. If this causes you to spend five hundred dollars instead of four hundred dollars, you just paid an extra one hundred dollars regardless of what the interest rate is. The way to win the money game is to spend less than you have, not by getting the best payment terms or interest rate.

7. Seven maxed-out Visas. Don't let the convenience and easy payments of credit cards lull you into easy debt. Do yourself a favor and cut up all your credit cards before Christmas. It's hard to find a situation where a debit card can't work exactly the same. The credit card industry sends out more than 6 billion credit card offers every year. If you can't sleep at night because you have no credit card come New Years, just look in your mailbox. Better yet, kick the credit card habit. The average household that carries credit card debt has more than nine thousand dollars in credit card debt. The average household that does not have any credit cards has zero credit card debt. That sounds like nine thousand good reasons not to have a credit card.

8. Eight checking boo-boos. Most Americans don't reconcile their checkbooks. It can cost you hundreds of dollars a year in overdraft charges and other fees if you are too lazy to keep track of your transactions. With online banking and software tools such as Quicken, reconciling your checkbook is easier than ever. Just think of all the presents you could buy if you weren't spending your money on these annoying fees.

9. Ninety days same as cash. Nearly eighty percent of people who sign up for a ninety-days-same-as-cash deal don't follow all the fine print rules and end up getting whacked with the full outrageous amount of backdated interest.

10. Ten collectors calling. Not paying your legitimate debts in order to have money to spend on Christmas stuff is not only unethical, it's a sure way to ding your credit rating in a hurry.

11. Eleven line advances. Many home equity loans now allow you to draw an advance with a linked credit card. This means you can take a loan on your home to buy a box of candy canes or your dog's Christmas play bone. Wise men don't finance food and doggy treats on a ten-year payment plan.

12. Twelve months of payments. Getting out of debt is the most popular New Years resolution; probably because most of us make such a mess of our Christmas finances. Paying for Christmas after the fact on payments can be avoided. If you don't use credit, you simply won't have payments.

In A Christmas Carol, the ghost of Jacob Marley came to warn Scrooge of the error of his ways. Later that night, Scrooge learned a great lesson and turned his life around. You too can wake up on Christmas Day a new person if you do the following.

1. Cut up your credit cards.

2. Open a new checking account with its own debit card that is exclusively for Christmas purchases. Choose a bank that will allow you to check balances by phone or on the Internet so you can check the balance at any time, even in the store. Transfer all the money you plan to spend on Christmas into this account. When you need to spend money get cash out of an ATM (which is preferable since spending cash hurts) or use the debit card. This will absolutely keep you from overspending and limit your impulse shopping.

3. Make a budget of what you want to spend. This can be as simple as a on a legal pad, to something more sophisticated like an online budget such as myholidaygiftplanner.com.

4. If you end up running low in this account, don't go into debt to add more money, get a holiday job or transfer money set aside for nonessentials (such as vacation, entertainment, or furniture replacement).

5. Find ways to give gifts that don't involve spending money such as service coupons or homemade crafts.

This holiday season, try using the tips above so you don't end up seeing red in your bank account come January. Have a truly Merry Christmas with a plan that helps you hold onto more of your hard-earned green.

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