With so many people on your gift list, it’s easy to get carried away with holiday shopping. However, overspending can negatively impact your credit score, which can affect your home buying ability, if you’re not careful. Here are some tips to keep your budget and credit score on track this holiday season:
- Set a budget. Before you hit the mall – or your favorite online stores – decide what your budget is for each person on your list. Choose gifts within that price limit before you ever go shopping, and commit to staying within that pre-set limit. Being sensible now will give you more financial power later.
- Pay with cash instead of credit or debit cards. It is easy to overspend using credit or debit cards because you aren’t seeing the money that goes in and out of your accounts. It is also easy to exceed your budget this way, promising yourself you will pay off the bills after the New Year. You don’t want to use more than 30% of your total credit limit, so maxing out your cards is a bad idea. Paying with cash will help you stay within your budget.
- Skip the gift exchange this year. Most of us find our budgets stretched to the limit during the holidays. Talk to friends and family with whom you normally exchange gifts and agree to skip the gifts this year or maybe just buy gifts for the kids. Instead, you can do a white elephant exchange, make homemade treats for each other, or exchange services like babysitting or cooking lessons. You’ll be surprised how many people will be grateful for the suggestion, and it’s fun to see how creative people can be.
- Be vigilant about identity theft and credit card fraud. If you’re doing online shopping, make sure you are on a secure site and a secure WiFi network, like your home network. Never make online purchases or access your credit or bank accounts online using public WiFi, and check your bank and credit card statements every few days so you can catch any unauthorized purchases immediately. If you suspect identity theft or credit card fraud, contact your card issuer and bank right away. It is a good idea to let the credit bureaus know too.
- Shop online cautiously. If shopping online, pay with PayPal to make sure your information is secure, and not shared with the seller. Does a price seem too good to be true? It just might be. Don’t go just by a site’s product photos. Look at the product details and dimensions, and look at customer reviews. If something seems a bit off, it just might be. Shop elsewhere.
- Don’t spend your whole holiday bonus on gifts. If you are lucky enough to get a Christmas or year-end bonus, don’t spend the whole thing on gifts. Buy you or your family a fun treat or reward, and save the rest for a down payment on your next house, the kitchen remodel you’ve always wanted, or to give yourself a financial cushion for emergencies.
- Don’t load up a low-limit card. The closer your balance is to the limit, the lower your credit score will be. You’re better off getting a higher limit card and spending less on that to pay it off. Remember, the benchmark is spending no more than 30% of your total credit limit on all cards and credit lines.
- Avoid opening a ton of store loyalty credit cards. We’re talking about cards like the Target Red Card or Alaska Airlines’ credit card. Every time you apply for credit, your score will get dinged a little. The more often you apply for these cards, the more your credit score will go down. The savings in store or the cash back rewards may seem worth it, but lowering your credit score isn’t.
- Don’t close your credit card accounts. It may be tempting, because you think you’ll save money in the long run, but you won’t. This will take credit away from the calculation used when seeing how much credit you utilize. If you need to limit your spending, put your credit card in a safety deposit box or a safe at home. That way it is available for emergencies, but it isn’t in your wallet for easy spending.
It is easy to get caught up in the spirit of the season and to spoil your loved ones with gifts. You can still spoil them, but do so in a way that fits within your budget. This will allow you to enjoy the holidays while also achieving your long-term financial goals – like buying a house. Happy Holidays!