As the holidays approach, our spending patterns can often go into overdrive. We buy gifts, stock up on food and libations and prepare for entertaining friends and family. Even the most budget-conscious people will see increases in their credit card balances during this time of year. It’s important to think about managing your financial health even if it’s the last thing you want to worry about this season.
According to Gallup, U.S. adults estimate that they will spend approximately $885 on gifts this year, slightly lower than 2017’s expectations1. With strong employment rates and rising wages, many consumers are feeling more confident about the economy. This may make them more comfortable to splurge.
While it’s easy to be caught up in the holiday season fervor, it can be helpful to consider these tips to help mitigate long-term potential “Scrooge-like” impacts on your financial health.
Here are 4 tips to managing your financial health:
- Create a budget and stick to it. Before heading to the mall or shopping online, spend the time to create a list of who you plan to get gifts for. Also, know the average dollar amount you want to spend on each individual. Having this in a list can help you stay focused and not overspend.
- Think twice before applying for/opening new credit. Many stores and online retailers provide incentives to get you to sign up for instant credit while you’re making a purchase. If you agree, it’s likely the retailer will pull your credit report. If you’re approved, that new credit account (with a balance from your purchases) will be reported to the credit bureaus within the next month. The posting of the inquiry, reporting of the new trade and incremental balance will likely have a negative impact on your FICO Scores. As such, it may be prudent to think twice if that instant 10% discount or a free gift set of Christmas themed dish towels are valuable.
- A gift doesn’t have to be a material item. Sometimes the most well-received gift is one that doesn’t cost a penny. Helping someone out with a project, taking the time to visit a person, agreeing to watch someone’s children so they can have free time for themselves are just several ideas of valuable gifts that won’t rack up your credit card balances.
- Try to pay credit card balances in full. If possible, pay your credit card balances in full to avoid costly interest fees. If you can’t, that’s okay as the holidays are about joy and giving – so don’t beat yourself up if your spending goes a bit overboard. However, it’s important to have a plan in place to pay off those card balances in the next two or three months after the holiday season ends as those revolving interest fees can add up pretty quickly.For example, assuming no new charges, a 15.9% interest rate and making a minimum monthly payment of $15 per month, it would take about 6 ½ years to pay that $885 balance off at an incremental cost of around $470 in interest rate fees. In addition, carrying higher balances on your credit cards can negatively impact your FICO Scores. Research consistently shows that higher debt levels and using a higher percentage of your available credit are indicative of higher credit risk. In addition, carrying higher balances on your credit cards can negatively impact your FICO Scores.
While the holidays are just around the corner, there is still an opportunity to take these tips into consideration. Help get your 2019 financial health goals off to a good start. Here are some financial health resolutions you should look into for 2019.
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