How Much More Will Your Holiday Gifts Cost if You Use a Credit Card to Pay for Them?

The holiday season is approaching fast and you're probably in the throes of gift buying (unless of course you're one of those organized people who has had your presents wrapped and waiting under the tree for weeks).

Many people end up spending a lot of money on all those holiday presents, with consumers expecting to spend an average of $654 on holiday gifts in 2023. Whatever you're buying, hopefully you have the money in your savings account to cover the costs. If that's not the case and you're intending to use credit cards instead, you may end up with your presents costing you a whole lot more than you expect.

This is how much more you could spend on holiday gifts if you use a credit card

If you don't have the funds to pay for your gifts outright and you put them on a credit card, you're likely going to pay interest at a pretty high rate. In fact, the average APR on a credit card stood at 21.19% in August 2023, according to the Federal Reserve.

If you charge the average $654 worth of gifts on a credit card at the average rate and you make only minimum payments equal to 2% of your account balance, it would take a whopping 83 months (almost seven years!) to pay off the presents that you bought this year. During that time, you would end up making total payments of $1,259.06. That's $605.06 more than the original cost of the gifts -- so you're almost doubling your spending on the presents you bought.

That's a huge amount of money, and you'd be committing to making payments years after the time when your presents would likely be long forgotten.

Now, of course, you could pay off your card sooner if you made extra payments. Say, for example, you wanted to pay it off in around a year. If you made monthly payments of $62, you could get that debt taken care of in 12 months -- but would still end up paying about $75.00 extra in interest. That may not sound like a lot, but it means your presents are about 11.5% more expensive. If you do that every year, those extra charges can really add up.

How can you fund your gifts in an affordable way?

The best way to avoid getting stuck with extra costs for your holiday gifts is to pay cash for them. This may not be feasible for you right now, since the holidays are just days away and you probably aren't going to find a bunch of money lying around to pay for all the presents you need to buy. You can start saving now for next year's festive season, though.

If you are in a position where you need to borrow this year, consider whether using a 0% APR card could be a good option. This would allow you to pay no interest for around 12 to 15 months, or potentially longer, which would hopefully give you enough time to pay the balance without owing interest.

If that's not an option, then your best bet is to try to pay off your card balance as soon as possible. The faster you become debt free, the less interest you'll pay. So, consider cutting back on expenses in January and beyond if you've charged your presents. This way, you can get that debt paid down before you make your gifts cost a whole lot more than you intended to pay.