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(ARA) - When it comes to the use of credit to fund holiday shopping, people tend to fall into two extremes of thought. Some believe in a cash-only approach to holiday spending, while others think it's impossible to get through the holidays without maxing out their credit cards.
For most, the approach that allows you to spread cheer without breaking the bank exists somewhere between the two extremes. Using credit during the holidays should be just like using credit at any other time of year. If you do use it, you should use it wisely and avoid overspending.
Using credit can make sense for holiday shopping, especially if you'll be buying big-ticket items (such as electronics) and could benefit from the extra layer of consumer protection that many credit cards afford. Buying with a credit card can also yield financial rewards; many credit card companies offer incentives such as cash back to encourage credit card use during the holidays.
So, how do you make decisions about credit use that will keep your holiday season bright without putting a damper on your personal credit and cash flow in the months - and possibly years - to come? The credit experts at Experian offer a few tips:
1. Establish a budget - The holidays arrive at the same time every year, and we all have 12 months to plan for them. Give yourself a very early gift, and start your holiday budgeting in January of each year. Decide how much you'll spend on holiday gifts and how much you'll need to save each month to accrue that amount by the time the holidays arrive. Set that amount aside in an interest-bearing account.
2. Check your credit - It's always a good idea to understand your credit and know your score before you make any big credit moves, such as funding your holiday shopping with credit cards. Websites like www.freecreditscore.com make it easy to check your score and learn about how your credit moves may affect your score and your overall financial well-being.
3. Make a list - You've got your budget in mind, now it's time to decide how you'll use your money. Create a detailed gift list of who you'll be buying for and what you plan to purchase or spend for each recipient. Having a plan in hand before hitting the mall can help ensure you don't resort to budget- and credit-busting impulse buys.
4. Keep your credit under control - Although incentives from credit card companies can help save you cash during the holiday season, those incentives may not be a good enough reason to open a new account. Don't be tempted to open new accounts in order to fund your buying or to get a discount or better deal. Opening too many accounts in a short time frame can negatively impact your credit score. Instead, look for incentives from cards you already have and use.
5. Don't spend beyond your means - It can be tempting to overspend on credit cards, especially during the holidays, thinking you're just spreading the cost of your purchases over a few months. Remember, when you buy on credit and take more than a month to pay off the balance, you're not just spreading out the cost, you're increasing it. The same holds true for those tempting low-APR promotional checks sent by credit providers. The vast majority of those promotions incur fees, thereby increasing your total purchase price while potentially simultaneously damaging your credit profile. If you can't afford to pay off your balance in a month or two - and minimize the cost of using credit - then you probably should reconsider how much you're spending.
Gift giving is one way we show the people in our lives that we care about and appreciate them. By keeping an eye on your credit and making smart credit moves, you can ensure the holidays stay happy for all, including your wallet.
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