Hustling to get your last-minute holiday shopping done? You’re not alone. In the US, 40% of shoppers say they wait until the week before Christmas to start their holiday shopping, according to a 2018 survey from Hilton. With fewer delivery options and less time, it’s easy to splurge on your last-minute holiday spending.
There’s also the cost of holiday celebrating and entertaining to consider. Dinners, parties, happy hours and travel make up 40% of our average total holiday spending every year according to a Deloitte study, but how many of us plan for this or set a budget? And since most of us put holiday spending on credit and store cards, if you aren’t careful last-minute spending could cause an avalanche of debt that buries your long-term credit scores.
But there’s still time to make smart spending decisions. Try these strategies now during the holiday crunch, and hopefully you’ll have a 2020 that is less financially stressful.
Think Before You Charge Last-Minute Gifts!
Pushing the limits on your credit and store cards is one of the easiest and fastest ways to sink your credit scores. Being approved for a credit card with a certain limit doesn’t mean it’s a good idea to run the card up to that limit. If a card balance totals more than 30% of the total credit limit for the card, your long-term credit scores can suffer. The best credit scores come when a person carries a balance of no more than 15% of the credit limit.
You may not get to 15% or 30% overnight, but right now look at the existing balances on all your cards versus their credit limits. When you have to charge something, try to use the card(s) with the most breathing room between the balance and the limit.
Buy Now, Pay Later? Don’t Take the Bait.
Before you agree to store financing for a big-ticket item ask yourself, what’s in it for ME? Opening a new store account just to finance a big-ticket item can do a double whammy on your credit. When you apply for credit, a new inquiry hits your reports, which can lower your scores. And if you quickly max out the credit limit on the new account, that will also drop your credit scores.
Deferring Interest Works … Sometimes.
Deferring interest can save you money … or it can sink your credit. With “no interest for XX months” offers, you only save money IF you can fully pay off the item within that time frame. If you don’t repay the entire amount within that deferral period – even if you pay off most of it – interest charges can be retroactively applied to the full purchase amount.
Stores and lenders set interest rates extremely high on a lot of these offers, knowing that many consumers won’t be able to fully pay off big-ticket items and the lenders stand to make more money off of the higher interest rate eventually. Word to the wise: Understand what you are signing up for, and don’t defer interest if it will blow up your monthly budget. Being stuck with a new chunk of high interest rate debt can damage your credit scores, too.
Don’t Outspend Yourself.
Our natural inclinations are to be generous and to celebrate by sharing during the holiday season. But we all need to be realistic about how much holiday we can really afford. Instead of worrying about it in January after the damage is done, think about it now. Why? Because even just a single late or skipped payment will stay on your credit reports for seven years.
Two or more missed or late payments could cause you to get turned down for home, auto and student loans. They may also cost you thousands of extra dollars in the form of higher interest rates across all your forms of credit, not just the card(s) you are late on.
Knowledge Is Power.
Before any painful bills stink up your new year, it’s a smart idea to know where you stand right now with all three credit bureaus. Pull your reports from TransUnion®, Equifax® and Experian® now, and review them. If you spot errors, you can file a dispute to get the information corrected. Reviewing your credit reports regularly is also a good way to detect identity theft early to minimize the damage to your credit and good name. If you see suspicious changes or accounts on your credit report, you can ask for a credit freeze so only those you authorize can run a credit check on you.
Now, armed with this information, get out there and have a great holiday season. Make smart spending decisions, so you can relax and enjoy the time with your loved ones.