As the economy continues to sluggishly recover, each year around Black Friday retailers fret that shoppers will forgo holiday gift shopping, or drastically cut back on spending. However, a recent myFICO survey indicated that while folks plan to flex their credit cards this holiday season, most are planning a modest budget — 65% of respondents said they’d expect to charge less than $500 on their credit cards this year. That’s good news for retailers and for shoppers’ credit health. But it’s one thing to plan not to overspend, and another thing to successfully execute said plan. How many of us plan not to overindulge on treats at holiday parties, but inadvertently wind up with a belly ache, a scattering of red & green crumbs around our shirt, wondering how we managed to pack in that many Christmas cookies that fast?
Avoid the pains of overspending: if you create a thoughtful budget, you’ll find it much easier to spend modestly this holiday season — but you’ll need to plan strategically and resist temptation. Here are eight easy tips to help you stick to your budget and avoid that unpleasant sinking feeling when your credit card statement arrives.
Create a game plan. Don’t just pick an arbitrary, reasonable-sounding number for your gift budget. Review your normal household budget (if you don’t already have one — start now!) and figure out how much you can afford to pay with cash, how much will need to go on credit, and how long it will take you to pay it off.
Know your limits. Specifically, your credit limits, and don’t max out your cards, especially on multiple accounts. Carrying a high balance can significantly lower your FICO Score, and the more you charge, the harder you’ll get hit by interest fees if you don’t pay them off in full. Generally speaking, aim to utilize less than 25% of your available revolving credit. This will reflect positively on the portions of your FICO Score that account for revolving credit usage. The lower your revolving credit utilization, the better: myFICO High Achievers use an average of only 7% of their available revolving credit, which earns them some of the highest credit scores in the nation. Learn the secrets of myFICO High Achievers.
Be cautious if opening new retail credit cards. It can certainly be tempting to open a new store credit card, especially with some of the enticing offers they dangle around the holidays. But applying for a new line of credit — known as an inquiry — can actually lower your score, especially if you apply for and open up more than one. A 15% savings on one big purchase may not be worth a significant ding on your FICO Score, especially if you plan to apply for a loan in the New Year. Learn more about how opening new retail cards affects your score.
Avoid impulse spending. This is a big challenge, particularly for those of us who are super organized and finish shopping before December even starts. What happens when you just so happen to stumble upon the perfect gift for your loved one, even though you crossed the last item off your list? Although it’s tempting to lavish the gifts on our dearest, consider the impact of the purchase long-term. If it’s something limited edition that can’t wait until the next birthday, you should to cut the cost elsewhere in your overall budget, whether it’s forgoing a massage or skipping dining out for a few weeks.
Use coupons wisely. Don’t let flashy sales derail you from your list and budget. The increased availability of group-couponing sites — which deliver enticing retail and vacation deals straight to your inbox — can pose irresistible temptations to even the most thrifty of shoppers. Although a deeply discounted luxury item may seem like a sensible buy, if you don’t actually need it, it’s just another impulse spend.
Factor in other holiday costs. Food and beverages for hosting family dinners, the Christmas tree, replacing old or broken decorations, bottles of wine to bring to holiday parties, travel costs if your visiting family far away — it all adds up, sometimes significantly. If you only have a certain amount to spend, make sure it includes these costs.
Be mindful of ID theft. Recently FICO found that ID theft continues to rise. If you’re shopping online, only buy from trusted sites, and always look for a secure checkout. If you’re on a laptop, be sure you’re on a secured network, and use complicated passwords with a combination of numbers and symbols. Watch out for these 6 signs of possible identity theft.
Know your FICO Score. Ideally, you should check your FICO Score both before you start shopping, and after you’ve finished. Knowing your score ahead of time will help you decide how to determine the cash vs. credit ratio for your spending, and checking your score after you’re done will give you peace of mind in the New Year.