3 Smart Credit Tips to Avoid Piling on Holiday Debt

3 Smart Credit Tips to Avoid Piling on Holiday Debt

Written by Deepak Bhagat, In finance, Published On
November 18, 2022
, 13 Views
Last modified on December 5th, 2022

Every year, the holidays put enormous pressure on your budget. If you aren’t scrimping and saving throughout the year, it’s easy to put all the festivities on credit.

Last year, one-in-three merry makers spent more than they could afford, adding $1,249 in debt, on average. Many of them regret last year’s purchases, as they’re still paying off their credit cards, lines of credit, and short-term personal loans.

3 Smart Credit Tips to Avoid Piling on Holiday Debt

3 Smart Credit Tips to Avoid Piling on Holiday Debt

This year, inflation makes holiday shopping without dipping into credit harder than ever. But there are ways to sidestep debt while celebrating the season.

Know Your Limits, Spend Within It

A common rule of thumb floating around the Internet is to spend roughly one percent of your gross annual income on gifts and goodies. However, you can still rack up debt following this rule if you don’t know your budget.

Before making a list and checking it twice, you should get intimate with your budget. Find out how much you can afford to spend this holiday by seeing how much expendable cash you have available.

Review your projected spending this season and cut any unnecessary expenses, putting subscriptions and other non-essentials on hold. This can free up more cash to put towards the festivities.

Use Your Credit Like It’s Cash

It’s unrealistic to expect you to swear off credit altogether this year. Sometimes, a credit card is the only way to snag an affordable deal online. Many airlines, hotel chains, and rental car companies also require it for booking and insurance purposes.

If you use the plastic in your wallet, pretend it’s cash. Only charge what you can afford to pay off by your billing statement’s due date.

While it might be tempting to rely on the minimum payment to get by, this isn’t an effective way to pay off debt. In fact, the minimum payment can extend how long you pay for the holidays because it adds interest and finance charges to these expenses.

The financial experts at MoneyKey recommend following this rule with your personal line of credit, too. Paying off as much of your balance will free up your credit limit in case you need help in an emergency this holiday season.

Cash into Benefits

If you must use a credit card anyway, you might as well take advantage of all the perks that come with it. Many card companies offer card-linked discounts if you purchase from affiliated retailers, so you can get 10–50% off your gifts. Don’t forget to redeem points if your card has these rewards.

Start Saving Earlier for Next Year

If your budget is tight, you might be disappointed with your spending limits this year. These negative feelings make you think celebrating on a budget is hopeless.

Once you’re in this state of mind, overusing your credit card or line of credit is as tempting as a second helping of turkey on the big day.

Before you tap into these accounts, remember they’re designed to act as a safety net in unexpected emergencies. Since you can expect the holidays to arrive roughly the same time every year, there’s nothing unexpected about the festivities or their cost.

Next year, add festive spending to your annual budget. You can set aside a little bit of cash starting in January, compounding your holiday fund with each month you contribute. By the end of the year, you’ll have the cash to use on the festivities without changing your everyday spending or misusing a line of credit.

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