The year-end holiday shopping frenzy will soon be here. Are you ready? This year, the National Retail Federation predicts Americans will spend a staggering $730.7 billion (with a B!) on gifts, entertaining, travel and other holiday-related expenses.
With all that ho-ho-ho-ing, we each ring up a painful average of $1,054 in credit debt during the holidays – and that can bring a lot of financial heartache in the new year. With parties, gifts and events to attend, it’s easy to “just put it on the credit card” and worry about it next year. The temptation to splurge on holiday shopping now can spell trouble later for your credit debt and your long-term credit scores.
Holiday tips to keep your scores from paying the price:
Know your limits before holiday shopping.
Check your credit card balances vs their credit limits and decide which card(s) is best for holiday shopping. Also, check your credit reports from TransUnion®, Equifax® and Experian® now, to see where you stand with each credit bureau.
Don’t apply for new credit cards when holiday shopping.
Store card offers might sound great, but short-term discounts and offers could do long-term damage to your credit scores. Applying for new cards can lower your credit scores because the bureaus keep track of every credit inquiry that hits your reports. Too many credit inquiries over a short period of time may lower your scores.
If it looks like you are financially stretched too thin and are trying to add cards to make ends meet, your credit scores will definitely drop. Charges on brand new cards during the holidays will drive up your credit utilization – the amount of debt you are carrying versus your credit limits. High credit utilization is a warning flag for creditors.
Don’t max out credit cards during holiday shopping.
Putting all your holiday spending on one card may sound like an easy way to manage your money. But if you end up close to or at your credit limit on a credit card, that high credit utilization can ding your credit scores for months to come.
Instead compare all your cards and balances, and try to spread out your spending. Keep some breathing room between your debt balance and your credit limit on each card. Aim to keep your balances below 30% of your card limits.
Make your holiday shopping list in ink!
Plan out your holiday spending, especially gifting. Set a dollar amount for each loved one. Estimate how much you may need to spend on holiday events like get-togethers and traveling. Remember this is in addition to your regular monthly spending for food, clothing and housing, so write down those totals also. Total all that up, and see what’s do-able. Which holiday items can you pay for in cash, and which ones will you charge?
Once your holiday spending list is set, stick to it! Shop with your list in hand, and be realistic about where and when you spend.
Make a 2020 repayment plan.
When the bills come in, how will you manage them? Paying just the minimum on credit cards every month can add a lot MORE debt because of the interest rates you are charged on your outstanding balances each month. Also, the more credit you use and the longer you take to pay it off, the more your long-term credit scores may suffer.
Instead, imagine your holiday spending list has been completed. For the purchases you plan to put on credit, think about which card(s) you will put them on. Can you pay more than the minimum due each month when the bills come in? If so, how much? Every little bit will help you whittle down your debt.
Protect yourself and your credit.
If you don’t yet monitor your credit, now is the time to start. With a clear and honest picture of where you are now, you can better avoid the temptations sure to come your way during this indulgent season. Monitor your accounts and regularly review all three of your credit reports for unusual activity during the holiday shopping frenzy and beyond.
Identity thieves don’t go into hibernation after the festivities wind down. Year-round monitoring can help protect your credit and alert you to changes or suspicious activity that may pose a threat to your financial health and your identity.
