How to Use Credit Wisely During the Holiday Season
The holiday season brings increased spending and temptation to rely heavily on credit cards. While credit cards can be a useful financial tool, it’s important to use them wisely to avoid accruing debt that can linger long after the holidays have passed. In this guide, How to Use Credit Wisely During the Holiday Season, we’ll provide tips and strategies to help you leverage credit responsibly during the holiday shopping season.
Understand Your Credit Limit and Utilization
Before the holidays, review your credit card limits and current balances. Aim to keep your credit utilization – the amount of available credit you’re using – below 30% on each card. This helps maintain a healthy credit score, which can impact your ability to qualify for loans, mortgages, and other financial products in the future.
If your utilization is creeping above 30%, consider requesting a credit limit increase from your card issuer or paying down balances before making additional holiday purchases. Maintaining low credit utilization is one of the most important factors in preserving a strong credit score.
Create a Holiday Spending Budget
Developing a realistic holiday budget is crucial for controlling credit card usage. Start by listing all your anticipated expenses, including gifts, decorations, travel, and entertainment. Then, allocate a specific spending limit for each category based on your available funds and financial goals.
When making purchases, refer to your budget and track your spending. This will help you avoid overspending and racking up debt. Consider using cash or debit cards for purchases that are not part of your planned holiday expenses to further separate necessary spending from discretionary splurges.
Take Advantage of Credit Card Rewards and Perks
Many credit cards offer bonus rewards or special perks during the holiday season, such as increased cash back on certain purchase categories or extended return windows. Review the terms and benefits of your credit cards to identify opportunities to maximize your rewards.
For example, you may be able to earn 5% cash back on grocery store purchases or 2X points on online shopping. Just be sure not to let the lure of rewards cloud your judgment and cause you to overspend. Stick to your budget and only use the cards that provide the most value for your typical holiday shopping patterns.
Avoid Opening New Credit Accounts
It can be tempting to sign up for store credit cards or new credit card offers to take advantage of holiday-related incentives, such as discounts or sign-up bonuses. However, resist the urge to open new accounts, as each credit application can result in a hard inquiry on your credit report, which may temporarily lower your credit score.
Instead, focus on using your existing credit cards responsibly. If you do need to open a new account, wait until after the holidays when the impact on your credit will be less significant.
Pay Your Balances in Full and on Time
One of the best ways to use credit wisely during the holidays is to pay your balances in full each month. This allows you to take advantage of the convenience and benefits of credit cards without accumulating interest charges.
If you can’t pay the entire balance, at least make the minimum payment on time to avoid late fees and penalties, which can further damage your credit. Consider setting up automatic payments or payment reminders to ensure you never miss a due date.
Beware of Deferred Interest Promotions
Some retailers offer “deferred interest” financing options during the holidays, where you can make purchases with no interest for a promotional period (e.g., 6 or 12 months). While these can seem appealing, it’s crucial to understand the terms and ensure you pay off the balance in full before the promotional period ends. Otherwise, you may be hit with retroactive interest charges on the entire original purchase amount.
Deferred interest promotions can be a trap, so approach them with caution and make a plan to pay off the balance quickly. If you’re unable to do so, it’s generally better to use a credit card with a lower, non-promotional APR instead.
Monitor Your Accounts and Credit
Throughout the holiday season and beyond, closely monitor your credit card statements and credit reports for any suspicious activity. This will help you quickly identify and address any fraudulent charges or signs of identity theft.
Many credit card issuers provide free credit monitoring services, so consider enrolling to receive alerts about changes to your credit file. You can also request free annual credit reports from the three major bureaus to review for accuracy.
Seek Guidance from UCCU
If you have any questions or concerns about using credit cards wisely during the holidays, don’t hesitate to reach out to the financial experts at UCCU. We can provide personalized advice on budgeting, managing debt, and maintaining a healthy credit profile. Our goal is to help you enjoy the holiday season while avoiding the pitfalls of excessive credit card use.
Remember, the key to using credit responsibly during the holidays is to approach it with a plan, discipline, and an eye toward your long-term financial well-being. By following these tips, you can leverage the convenience and benefits of credit cards while keeping your finances in order. This holiday season, make sure to use your credit wisely