3 Tips for using credit wisely this holiday season

‘Tis the season to shop ‘til you drop, but are your finances prepared for the holiday’s big bill? If not, it may be tempting to borrow money to afford the festivities, but this is a quick way of putting your finances on the naughty list...

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It can certainly be tempting to splash the cash at Christmas, especially when we’re all feeling a bit like we need to ‘make up for’ last year. However, it’s never a good idea to spend more than you have – and definitely not more than you can afford.

I’ve already shared some easy ways to put money aside for Christmas, which may help you to be more prepared before the big day arrives, along with some ideas for saving money while you’re shopping for gifts during Black Friday or the festive sales. So, before you take out a loan or line of credit to celebrate the holidays, check out these tips to keep your credit safe this holiday season.

1. Borrow wisely (or not at all!)

The holidays aren’t always the most wonderful time of the year. For plenty of families across the country, it’s a challenge to stretch their tight budget to cover extra spending. And with the lingering effects of the pandemic, it may even be harder to celebrate as normal.

If you’re struggling to make ends meet, it may seem tempting to put the holidays on a line of credit or installment loan. But this would be a bad idea. These financial products are designed as a safety net when you don’t have emergency savings to cover unexpected expenses rather than simply for seasonal shopping.

Parking fines, emergency household repairs, medical expenses — if you run into unexpected trouble this year, a line of credit gives you access to cash when you need it as an emergency stopgap. As such, they can often have high rates of interest and hefty charges if you don’t make timely repayments. So, when it comes to celebrating Christmas and buying gifts, it’s better to investigate other options.

2. Use a credit card like it’s cash

While a line of credit is better left for emergencies, the same can’t be said about credit cards. The plastic in your wallet can be a helpful shopping companion, letting you shop more safely online or reserve hotel rooms, plane tickets, and rental cars.

That said, where a lot of people get into trouble is how they use their cards. They charge way more onto their credit card than they could afford to pay for with the cash in their account. Eventually, all that spending catches up with them in the form of a statement they can’t pay off.

To save yourself the trouble in the new year, pretend your credit card is cash. This means you’ll have to sit down with your budget to figure out how much you can afford to spend on the festivities, then stick to this number as you charge things onto your card, even if you have more credit available.

And there’s no need to wait until you get a credit card bill before you make a payment – you can buy a product online and then, as soon as it’s delivered, you could log in to your credit card account to pay for it straight away. That way you won’t incur any charges or late payment fees.

3. Always pay more than the minimum

Your credit card’s minimum payment is the least amount of money you need to pay to keep your account in good standing. As a small fraction of your overall balance, it’s easier to budget for during an already hectic financial month. There’s just one catch: any time you make the minimum payment, you’ll carry over a balance that’s subject to interest and other charges.

These fees won’t make much of a difference if you rely on paying the minimum once or twice in an emergency, but they add up the longer you rely on making minimum payments. This post shows what happens if you only ever make the minimum repayment. Not only does it take you longer to pay off what you owe, but you’ll also have to pay as much in interest as your initial balance.

Sure, there’s a time and place for every financial product. While there are emergency lines of credit for unexpected bills, your credit card is more likely to accompany you on shopping trips. But be sure to keep your credit safe by using it like cash and keeping on top of your bills. This way, you won’t head into the new year with any financial worries and can enjoy a relaxing Christmas.

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Cassie is a freelance writer with a Masters degree in Lifestyle Promotion Studies and is trained in Personal Money Management. She loves to ‘get the look for less’ so regularly shares thrifty-living advice, DIY interior design ideas and low-cost recipes on her blog.

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