The holidays are fast approaching, and while it’s a wonderful time to be with family and friends, and give back to our fellow human beings, it’s also a time of year that can be treacherous financially. For many households, there is a huge spike in spending and debt between Thanksgiving, Christmas or Hanukkah and New Years. Retailers count on it, making 15-20% of their total annual sales during that period. Include Valentine’s Day, winter break vacations and possibly a couple birthdays, and it’s a time of year that could break the bank and wreck your credit score.
However, the holidays don’t have to see your debt and spending spin out of control. Here are 12 tips to help you save money, plan responsibly, keep your debt level down, and protect your credit score.
Set a budget beforehand
Did you know that the average American expects to spend $812 on Christmas or holiday gifts? While that is a big chunk of money, we often blow right past that mark, especially if you add in extra holiday meals, entertainment, decorating, parties, and donations. So this holiday season, practice a little discipline and conserve.
Set gift limits
Have you ever overspent on someone who didn’t get you anything, and then had the opposite happen? Talk to your friends and family and plan the exchange of gifts. You may be relieved to hear that many of your friends would rather spend time with you have a nice at-home dinner than receive more stuff, which means you’ll have more money to spoil the kids!
Pay for things with cash
Studies show that we spend far more when we pay for purchases with a credit or debit card compared to cash, even though you are paying much more for the privilege of paying later. So this holiday season, visit the bank and take out the cash you’ll need for each gift on your list. You’ll end up spending less avoid a big credit card bill come January or February – not to mention a potential hit to your credit score.
Don’t open store cards!
You know that old saw at the cash register when the friendly cashier asks the inevitable question, “Would you like to open a store card and get an additional 20% off your purchase today?” You look at the sizeable pile of things and do the math – saving 20% on the bill would buy you a nice lunch AND a Starbucks for the ride home.
Rethink this one! Retailers dangle this carrot millions of times during the holiday season and throughout the year, with virtually all of them offering store credit cards these days. But even though it seems like a good idea initially, applying for additional credit can hurt your credit score. Store retail credit cards have high interest rates, low balances, hidden fees, and aren’t looked smiled upon by the credit bureaus. If you have to pay with credit, use a responsible, low-interest card that gives you cash back or reward points.
Pull your credit
Most of us have been suckered into pulling our credit report for something. We go on one of those “free” sites to be hit with a $15 hidden fee to see the full report. Be aware that the Fair and Accurate Credit Transactions Act (the FACT Act) states you are eligible to receive a free copy of your credit report once each year from each of the three major credit bureaus by going to http://www.annualcreditreport.com.
Take a cold hard look at your credit history, it won’t show you your score, but at least you’ll be able to monitor your credit activity and make sure you’re on track. You can also receive a copy of your credit report through a company like Blue Water Credit or a mortgage lender when applying for a loan. It’s wise to review your credit report and score before and then after the holiday shopping season.
Be wary of identity theft
Identity theft and crimes of financial and data theft are more rampant than ever in the United States, with approximately 20 million people having their identities used fraudulently every year. The collective bill on that theft is upwards of $50 billion dollars – three times more than the combined $14 billion in losses from all other types of consumer theft like burglary, motor vehicle theft and property theft, combined.
It also takes a lot of time, stress, and money to clear up the mess identity thieves leave behind, as a compromised credit report will set off a domino effect of raising interest rates and even insurance premiums. On average, each identity theft victim suffers direct losses of around $9,650, up from just $3,500 a few years before.
So a quick set of best practices: review your credit report, don’t use credit cards on fishy sites, never make purchases or give your financial details on public or unprotected Wi-Fi networks, change your passwords frequently, and look over your bill completely.
Don’t max out credit cards
Avoid serious harm to your credit score by maxing out credit cards during the holidays. In fact, consumers with a score over 760 have an average credit card utilization (aggregate credit card balances relative to credit limits) of only 7 percent, and staying under 30 percent will keep your score healthy.
Make payments ahead of due date
It’s easy for consumers to know when their credit card’s due date and pay on time, but there’s another relevant calculation, which is often a secret. Each creditor also has a Report Date – when they send their information into the credit bureaus and FICO. If you use your credit card a lot and pay it off at the due date, the higher balance will always show on your credit report that month because Report Date is before Due Date. So a great tip to increase your credit score is to call your creditor, ask them what day they report, and make sure to pay your accounts off or down before that date – not the due date.
Check discount codes for online shopping
You should take advantage of discount codes if you prefer to shop online from the comfort of your warm and cozy couch instead of battling crowds at the mall.
Also called promotional codes, discount codes are like online coupons that allow you to save a truckload of money on your Internet purchases. When you go to a retailer’s website, you’ll see a box to input a discount or promotional code.
The savings vary greatly – sometimes it’s just 5%, but other discounts will go up to 50% off for a day, or other packages or promotions that will amaze you. Cyber Monday is honestly a good time because the deals are excellent. You can simply Google promo code for that site or there are third-party websites that help track codes for free.
Plan to pay off the debt, soon
If you do your holiday shopping with credit cards, as opposed to cash, make sure you have a sound plan how and when you’ll pay them off. The bigger the chunk you can throw down, the better before interest charges even kick in. If that’s not possible, then calculate it out and set a schedule of extra payments you’ll make to get your card paid off at least within the first couple months of the next year.
Stash some funds for emergencies
Murphy’s Law says that the least convenient time something can go wrong, it will. Keep a few hundred dollars aside in case of emergencies or special events over the holidays. That way, if the water heater explodes Christmas morning, the car breaks down on the way to the office holiday party, or you run up your cell phone bill wishing everyone a Happy New Year, you’re straight. The best part is that if nothing happens to that fund money, you can use it to pay off debt, add it to savings, or invest it.
Plan the coming year
Now that you’ve had a great holiday, it’s time to start looking at the future! Open a separate savings account or out aside an envelope and deposit some money every month when you get paid, expressly for the holiday season. Even $25 or $50 a month will add up to big bucks that can cover most of your holiday gift giving budget come next winter!