Americans enjoy Christmas so much, that they often get carried away. It’s one thing to go all-out decorating a tree or preparing the ultimate Christmas dinner, but some take the holiday spirit too far when they charge so much to their credit cards that they begin the New Year under a mountain of debt. At the same time, credit cards are a very secure and convenient method of payment, and shoppers can earn valuable rewards for their holiday spending.
Before you pull out the plastic this year, consider these tips for using your credit cards responsibly during the holidays
1. Set a Budget
If you had unlimited money, then you could simply buy everyone you know anything they want, and not worry about the cost. But the reality is that we all must live within our means, or face crippling debt and costly interest charges. Regardless of how much money you make, it’s best to set a budget for your holiday spending and stick with it. Start with an overall figure for how much your household can afford to spend during the holidays, and then split that budget among your different expenses like gifts, decorations, parties, and travel.
2. Watch Your Credit Utilization Ratio
Your credit utilization ratio is the amount of total debt you have divided by the total amount of credit you’ve been extended. A rule of thumb is that you don’t want to use up more than 30% of the credit that you’ve been extended on any one of your cards, or on all of your credit cards as a whole. The lower that percentage, the better. If you find yourself having to keep an eye on your credit limits, you can pay down your balances before you receive your statements. Also, you can apply for new credit cards or ask for credit limit increases on your existing cards. However, you want to have very low balances when you apply for new credit. As the old saying goes, banks only want to lend money to those who don’t need it.
3. Use Your Credit Card Account’s Alerts
It’s because credit cards are so convenient to use that it’s so easy to overspend. However, nearly all credit card issuers now offer ways to configure email and text alerts. You can set alerts to notify you when your payments are due, or when you’ve reached a certain spending threshold. Many card issuers also allow you to configure an alert that notifies you when one of your authorized users spends a certain amount. And best of all, you can use these alerts for free.
4. Look for Holiday Promotions
The credit card industry is intensely competitive, and each card issuer is trying to give you a reason to use its card over its competitors’ cards. One of the ways it does this is to offer special promotions throughout the holiday season. Check if your credit card offers exclusive discounts for spending at certain stores. For example, some issuers have a shopping portal where if you click to a partner site through their portal, you will get a discount (or extra rewards) for your purchases. Others might have a Twitter feed that offers discount codes, or another program that requires you to sign in and sign up for offers. However, be careful not to make unnecessary purchases just to receive a discount.
5. Maximize the Value of Your Rewards
If you are using a rewards credit card, then you may have many choices when it comes time to redeem your points, miles, or cash back. If you are paying interest on your holiday debt, then the best thing that you can do with your rewards is to redeem them for statement credits to pay down your debt. But if you are able to avoid interest charges by paying off all of your statement balances each month, then you might be able to redeem your points and miles for travel rewards that are worth more than the cash back offered. (See also: Best Ways to Use Your Points and Miles for Holiday Gifts)