The shopping, eating, parties and gift-giving of the holiday season are now behind us as we get back to a more normal routine. That also means we can expect credit card bills in the coming weeks that will reflect the realities of our holiday celebrations.
According to the American Research Group, shoppers indicated they planned to spend an average of $845 for gifts this past holiday season and a large percent of that was likely charged on retail and bank credit cards.
In a perfect world, we’d pay the balances in full and start 2013 with zero credit card debt – reducing the amount of interest paid to the lenders and helping to increase or maintain your FICO Score. The reality is that many of us simply don’t have the cash on hand to do just that.
What can you do?
Don’t beat yourself up too much if you over spent a bit. The holidays are a time to celebrate with friends and family, and that’s worth a lot of value. At the same time, you should create a plan to pay down those credit card balances as quickly as you can, to save money and avoid a negative impact on your FICO Score.
-At the very least, be sure to make the minimum payment owed on each card before the due date. A missed payment will likely have a large effect on your credit score.
-Prioritize the cards that you’ll pay down first. Focus on those cards with the highest interest rates first. This will help you save money on the amount of interest charges you pay. Even paying a small extra amount over the minimum payment due – say $25 for example – can result in interest rate fee savings.
-Be careful with new charges on your credit cards. The interest fees on credit cards are usually calculated based on the average daily balance and not just on the balance that was not paid in full from the last billing statement. That means there is no “grace period” where new charges are not accruing interest before your next credit card bill is due.
While there is no sure-fire cure for a regular hangover, the good news is you can alleviate the pains of holiday overspending on credit cards with some good financial management planning – and then sticking to it.
Tom Quinn is the Vice President of Business Development for myFICO, and has over 20 years of experience working with consumers, regulators and lenders and regarding credit related questions and initiatives.
Do you have a holiday credit hangover? Take our Post-Holiday Spending Survey and let us know how you did!