Festive season leads you to spend extra like buying Christmas gifts for family and friends or hosting a New Year party. Everyone loves to indulge in shopping, merriment, eating out and planning a tour.
However, overindulging may create a financial havoc. You might not find an immediate effect on your finance, but you never know how your mindless festive spending hits your credit score. I hope you all know a bad credit score makes life difficult.
So, what will you do? No, I am not going to say that stop enjoying the festive season or stop buying Christmas gifts.
Let not the Christmas spending mess up your credit score. You just need to be financially prepared beforehand and make wise monetary decisions instead of committing blunders.
Know the risks associated with enjoying Christmas on credit
Covering all the extra costs by using credit cards may arise financial problems. However, if you pay off the balance within the time, then it is fine.
Some people spend mindlessly. They start ignoring their financial ability and spend beyond their means. They usually keep a mindset "I will pay off the bills later" and fail to remember the date of payments. Soon they fall into debt and credit score takes a significant dip.
Some people are even unaware of the interest rate of their credit cards.
If you are using a relatively higher interest credit card, then you may accrue high interest charges that you haven't thought of.
Make sure you don’t miss any future payment; otherwise, your impulsive shopping on the festive season can cost you dearly.
7 Tips to indulge in Christmas spending without hitting credit score
Try to play a safe game. Enjoy Christmas without inviting financial problems. Below are some tips:
1 Say “no” to new store credit cards
Store credit cards are enticing during the holiday for its special offers and discounts. But obtaining a new store card just before the holiday season can hit your credit score.
2 Mind your credit limit
Before you hit the store, consider checking your credit card information, including current interest rate, and the balance you haven't paid yet.
Remember, "The closer your balance is to the credit limit, the worse your credit score is"
Having a balance of $700 on a card with $8000 limit will affect less to the credit rating than having a balance of $700 on a card with $1200 credit limit. You shouldn't exceed 30% of your credit limit; otherwise, your credit score may drop.
In case a certain amount you owe and continue shopping on that card, your credit score may take a dip.
3 Create a Christmas budget plan
Remember, holiday expenses are extra; but, you have to meet daily necessities.
For example, you can't ignore your equity bills to buy Christmas gift.
So, review your current budget and reduce expenses that are not necessary for the time being. Prepare a budget to include holiday expenses like gifting, throwing a party, vacationing, etc.
Make sure you shop as per your budget and stick to it. Thus, you can make your dear ones happy during the festive season and your credit score will thank you, too.
4 Be an early bird
Don't rely on a store credit card or upcoming discounts. Set aside some money for Christmas spending beforehand. Some extra cash will give you extra happiness during the holiday season.
5 Pay off your past dues
Pay off all your outstanding balances as soon as possible; otherwise, you have to pay more interest. Also, don’t miss a single payment on a credit card, your credit score will get a major hit.
6 Avoid payday loan trap
Taking out a payday loan may be an attractive option to fund holiday expenses. But its higher interest rate can harm your credit score. In case you fail to pay it off, you can be considered as a risky borrower by lenders and creditors.
7 Be aware of holiday identity theft
The holiday season is a time when hackers and scammers can easily steal your identity. One of the major reasons is, surfing endless shopping websites without knowing the risk associated with it. Some websites are not authentic and can easily reveal your payment information to scammers. Identity theft can affect credit score badly.
https://www(dot)xyz.com/ = secured
http://www(dot)xyz.com/ = unsecured
Finally, think out of the box; no one tells you to give an expensive gift or throw a luxury party on Christmas. Give priority to your budget and other necessary expenses. Make others happy staying within your means. Thus, you'll not mess your financial life. Your dear ones will be happy and so do your wallet and credit score.