According to the National Retail Federation, the average holiday shopper will spend $738 on gifts and seasonal items. Although some consumers take the attitude that the holidays are a time to splurge, the truth is that poorly thought-out spending can negatively affect credit. Maxing out credits cards is very easy to do during the holiday shopping season, and when your credit card balance exceeds 10 – 30 percent of your card limit, it negatively impacts your credit score. Also, the higher your card’s interest rates, the harder it can be to pay down your card.
With these damaging effects in mind, we spoke to bankruptcy attorney Paul Kuzmickas to find out how consumers can help prevent them.
For this year…
Make a plan.
“Sit down before you head out to the stores or start adding items to online shopping carts and make a plan of action,” Kuzmickas says. “You’ll want to prioritize who you’ll be giving gifts to, and it’s best to assign a budget now so you’re not swayed in the stores. If you already know what items you’ll be giving, start looking for coupons or deals to bring the price even lower.
Keep an eye out for price adjustments.
“If you’ve already gotten a head start with holiday shopping,” Kuzmickas says, “I’d suggest downloading an app like Slice to help you track online purchase shipments. It’s free and it can also alert you if a price drops so that you can request price adjustments.”
For next year…
Create a holiday savings account.
“Time flies, and before you know it, it will be time to start preparing for the 2014 holiday season. Start tallying your holiday expenses this year to help you build your budget for next year,” Kuzmickas recommends. “If you plan to spend $1,000 over the 2014 holiday season, consider moving money from each biweekly paycheck into a holiday savings account. By earmarking $40 from every paycheck, you won’t find yourself swallowed up in holiday debt and you’ll be able to pay off purchases immediately instead of accruing interest.”
Use cash.
If credit cards pose too much of a problem for you, Kuzmickas recommends sticking with cash. “If you’re struggling with debt management and repayment, pare back your budget, be honest with yourself, and pay cash.” You won’t have to worry about your purchases affecting your credit, and you’ll have a better sense of how much you’re spending on each item and overall.
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