Carrying a credit card around this holiday shopping season can make sense in many ways. It offers convenience and greater purchasing power, but there’s a fine line between smart holiday card use versus letting credit card shopping get out of hand.
Here’s a basic guide on the dos and don’ts when using a credit card over the holidays.
Do: Set a budget ahead of time
Before setting foot in a store or visiting an online retailer to check-off your gift list, set boundaries around your spending limit.
First, decide how much money you can afford to spend in total. This amount is the maximum limit you’ll spend on gifts for everyone on your list. Then, determine how much money can realistically afford to spend for each person.
Your budget per person may vary. For example, your budget for your parents’ gift might be different than a gift for your coworker’s Secret Santa gift.
Don’t: Let your card limit act as your budget
Remember that purchasing power mentioned earlier? Don’t fall into the trap of using your credit card limit as your official shopping budget. You’ll likely overspend and find yourself in a downward spiral of debt that’ll be hard to repay.
Plus, using up too much of your available credit impacts your “credit utilization ratio”. This is the amount of credit you’ve used compared to the total amount of credit you can access. If this ratio is too high, it can negatively impact your credit score.
Do: Look into 0% credit card promotions
Comparing 0% interest credit card promotions ahead of the shopping season is the smart way to shop with a credit card. These promotions let you make purchases at zero interest for a limited time, sometimes as short as three months or as long as 18 months. Any charges within the promotional period won’t incur interest, even if you roll over the balance month-to-month.
This can be helpful if you’d like to make installment payments on your holiday shopping purchases without your balance ballooning each month. However, it’s important to repay your entire balance before the promotion ends to avoid interest.
Don’t: Get sucked into store card discounts
During peak shopping season, retail stores may offer an added discount if you open a store credit card on the spot. These discounts are typically an extra 10% to 15% off of your purchase — but resist the temptation.
Although you might get a small discount by opening a card, store credit cards often come with very high interest rates and minimal card benefits. If for any reason you’re unable to repay your entire statement balance, you’ll get hit with hefty interest charges.
Do: Be selective when applying for a new card
When shopping for a credit card, the mantra “quality over quantity” holds true. Research a handful of credit cards you’re considering applying to and make sure it offers benefits that you’ll find valuable beyond the holiday season.
Factors to look at when comparing credit cards include interest rates, welcome bonus promotions, interest rate promotions, rewards and cash back programs, and other protections, like travel and purchase benefits.
Don’t: Apply for too many cards at once
Regardless of the type of credit card you’re considering, make sure that you don’t apply for too many cards in a short time. New lines of credit factors into 10% of your FICO score calculation.
If you open multiple cards in one sitting, your credit score may drop which isn’t a compromise you should make just for more holiday shopping power.
Do: Check card charges, frequently
With so many consumers swiping their cards this season, this time of year is a magnet for online and in-person credit card fraud. While it’s a good idea to check your card transactions daily as a general habit, it’s especially a good idea to do so over the holiday months.
This helps with non-fraud issues, too. For example, you might’ve been double-charged at the checkout counter — by checking your charges frequently, you can spot any suspicious or incorrect information so it causes minimal damage to your finances.
Don’t: Ignore credit card debt after the holiday
The post-holiday debt hangover is real and can be a hole that’s tough to climb out of, if you’re not on top of your balances. Avoid missing a payment and make sure you’ve only purchased what you can afford to repay in full each month.
The holidays are a time for giving, but it’s also a time to keep your financial health a top priority. If you need help managing a last-minute shopping budget or want to proactively create a debt repayment strategy after the holidays, reach out to a financial coach today!
Using a Credit Card for Holiday Shopping — Dos and Don’ts is written by The Financial Gym Team for financialgym.com