From stocking stuffers to big family meals, the holidays bring plenty of opportunities for festivity, generosity and celebration … as well as overspending.
More than 60% of Americans said they felt pressured to break their budget on gifts, travel, social gatherings and even donations in 2019 – and by January 2020, the average American had about $1,325 in holiday debt. That’s more than a New Year’s financial headache: Debt incurred in December can last well through the spring and summer, damaging your credit and making it harder to handle emergency expenses.
This holiday season, follow these steps to keep your credit score up, and steer clear of unwanted debt:
- Make a budget and check it twice. Every good financial plan starts with a thorough understanding of your income, expenses, debts and savings. Dust off your budget, sit down with your bank statement, and determine how much you can reasonably allocate towards gift-giving, donations and holiday fun. This may be the season of giving, but it should not put you in the red. If the household budget is tight this year, focus on other ways to give. You (and the family) can volunteer your time to a local nonprofit, write letters to soldiers or even donate other resources, such as blood or plasma.
- Don’t rely entirely on credit. Charging more to your credit cards, even if you pay them off on time, can still impact your score by changing your utilization rate. Experts recommend using less than 30% of your available credit during any given period. For example, if your available credit is $1,000, don’t charge more than $300 to that account in a month.
- Stay on top of your payments. Amid the holiday fervor, it can be easy for a small payment to slip your mind – especially on an account you don’t often use. Set aside time to go over your credit cards and check for outstanding charges.
If you do miss a payment, don’t wait to settle the balance. Credit card companies are required to wait 30 days before reporting your account as “delinquent” – which is a serious blemish on your credit history. Paying your debt within that time limit is critical to maintaining a healthy credit score.
- Be wary of digital spending. More Americans are skipping store aisles in favor of online shopping. But while Amazon, Etsy, Walmart and other e-commerce giants offer convenience and selection, they’re designed to encourage impulse buys.
Plan your digital purchases like you would a trip to the store – including a written shopping list. Stay focused on what you need and avoid spontaneous “flash” deals. Before you check out, make sure your total spending is tracked and tallied against your overall budget.
- Keep an eye out for fraud. With distracted shoppers spending more than usual, the holidays are the peak season for identity theft. Stay vigilant: Monitor your credit card and quickly report any purchases you don’t recognize.
At the end of the year, request your annual free credit report (contrary to popular belief, doing so won’t harm your standing). Up to 20% of credit reports may have errors or fraudulent charges that can lower your score, so be sure to dispute anything that seems amiss.
Remember: You can enjoy everything about the holidays without spending more than you can comfortably afford. With a little planning and extra care, you can enjoy the festivities without burdening your credit – and you will thank yourself in January.
Axiom Bank, N.A., a nationally chartered community bank headquartered in Central Florida, provides retail banking services, including checking, savings, money market and CD accounts, as well as commercial banking, treasury management services and commercial loans for both real estate and business purposes.