Ah, September. That magical time of year when boots and open-toed shoes intermingle, mornings get crisper, people start lining up for those pumpkin spice lattes and some retailers start hauling out their holiday cheer.
It seems every year, some store somewhere feels the need to make the holiday shopping season just a tad bit longer. In fact, I wouldn’t be surprised if roadside fireworks stands start selling Christmas trees in late June next year.
There’s one positive to be said about the ever-earlier start of the holiday shopping season, though: preparedness. That’s especially true when it comes to your credit and credit cards.
If you’re like most Americans, you’re carrying some credit card debt. In fact, revolving credit debt, made up mostly of credit cards, climbed 3.45% in July, compared to 11.5% the month prior, the Federal Reserve said last week. In fact, credit card debt is expected to top $1 trillion dollars this year, closing in on the all-time high of $1.02 trillion set in July 2008, just before the Great Recession.
If you’re worried what your holiday gift-giving, party going and other festivities might do to your credit card debt, now’s the time to make a plan.
1. Start by Checking Your Credit Scores
Whether your holiday spending plans involve opening up a new credit card or taking measures to protect your credit, the first thing you’ll want to do is see where your credit scores stand. You can get two free credit scores, updated every 14 days, on Credit.com, and, in your credit report summary, you’ll see what areas of your credit are helping (or hurting) them. For example, 30% of your score is based on the amount of debt you’re currently carrying in relation to your credit limits. This credit utilization ratio can bring your scores down quickly if you’re carrying a lot of credit card debt.
2. Ask for a Credit Limit Increase … No, Not So You Can Spend More
Another way to improve your credit utilization is to ask for a limit increase. To be clear, just because people tend to charge more during the holidays doesn’t mean it’s a good reason to spend more than you can afford. Given the high interest rates on credit cards, a little overspending can take months to repay and cost you hundreds — potentially thousands — of dollars in interest.
That being said, if you’ve budgeted for the increase in spending and plan to put it on credit cards, it’s important to be careful about how high you push your credit card balances. To keep your credit scores in good shape, many experts recommend using less than 10% of your available credit.
3. Pay Down Your Debt
Once you know where your credit stands and how your current debt is affecting it, it’s a good idea to put together a plan pay it off. If your credit card interest rates are high, you could benefit from taking a personal loan at a lower interest rate and using that money to pay off your credit card debt. That also can potentially help your credit scores in the long-term, since the mix of credit accounts you have (mortgage, auto loan, personal loan, credit cards, for example) also affects your credit scores. You can see how long it will take you to pay off your debt using this credit card payoff calculator.
4. Make a Holiday Spending Budget
Yes, part of the joy of the holidays is gift-giving; seeing that look of excitement on your loved one’s face is priceless —until you look at your credit card statement the following month. Ouch. It’s a good idea to set a budget for what you’ll spend on presents, parties, outings and even decorations. The important thing with any budget is to be realistic, so if you know you’re going to end up buying that iPhone 7 Plus for your girlfriend, just put it in your budget and figure out how you can save in other areas (like eating peanut butter for dinner for the next three months, or buying your dad a tie).
Just remember, the holidays will be more fun if you plan ahead a little and aren’t stressed about how much you’ve spent and how much extra you might end up paying in interest. ‘Tis the season to be jolly, after all, but seriously, stay away from the pumpkin spice lattes.
Image: Joan Vicent Canto Roig