Keeping Your Credit On Track During The Holidays

While many people overlook it’s price-tag, the holidays can potentially have a damaging impact on your finances. According to a recent survey from LendEdu, the average American will spend an estimated $165 preparing for the Thanksgiving holiday this year. Of this cost, nearly 41% will be spent just on travel and transportation expenses alone. With such a high propensity for spending, it’s no wonder why retailers are now using everything at their disposal to get you to their stores and websites. Though all the excessive holiday shopping that takes place this season may seem harmless, it can actually be detrimental to your credit if not carefully evaluated. Fortunately, there are some very simple steps you can take to keep your finances in tact and still enjoy this time of the year.

#1) Know What You’re Signing Up For

Just because you’ll have the option of paying on credit this holiday season, doesn’t mean it’s in your best interest.   As a general rule of thumb, it’s usually best to avoid paying back unnecessary interest by making cash-only purchases as often as possible. But assuming you still opt to go the credit card route, it then becomes absolutely critical that you thoroughly understand all of your terms and conditions. One common trap that easily deceives holiday shoppers is the offer of a deferred-interest credit card. Extremely common at big retail stores, this type of offer deceptively resembles a period of no interest for you, the borrower. However, what it really becomes is the option to temporarily postpone paying interest for a predetermined amount of time (i.e. 6 months). After that promotional period ends, you then become fully responsible for all accumulated interest unless the entire amount you originally borrowed is paid off by then. In this situation, knowing the exact interest rate, principal balance, and minimum payment on your credit card is necessary in order to determine your payoff time. With that information on hand, you can then create your own payment plans which will allow you to pay more than the minimum balance each month and eliminate debt much sooner. Another alternative is to search for a credit card that offers a true 0% interest rate period instead of a temporary deferred interest rate period.

#2) Look At The True Financial Impact

A recent survey by LendingTree’s CompareCards.com found that over half of Americans feel pressured to spend more than they can afford on holiday gifts. Additionally, 42% are also likely to turn to no-interest credit offers to make their holiday purchases this year. This not only points to a very dangerous spending pattern, it also highlights the risk of not operating on a budget. Because your everyday living expenses are not likely to disappear over the holidays, having a solid spending plan for this time of year is a must. Therefore, one of the best strategies for avoiding debt right now is to simply create a separate holiday budget. Ideally, you should also have separate funds available which can also be dedicated solely toward buying gifts for your loved ones. This may require you creating some additional sources of income such as ride-sharing or selling used items on Amazon & Ebay. Another effective strategy is to come up with a fixed spending amount for each person on your holiday list (i.e. $25 per person). This will help you capture upfront the total amount you’ll end up spending on gifts, based on the number of people on your list.

#3) Focus On What’s Really Important

Despite all the effort that goes into buying gifts, what the holidays should really remind us of is what’s truly important in life. Our faith, love of family, and spirit of thankfulness are all things that cannot be purchased and should therefore become our top priority. You may not be able to find the perfect gift for everyone on your list or even afford gifts for some. However, it’s important not to let that to become the focus right now. Remember that you’ve already been blessed with much, no matter how much spending takes place during the holidays.