(ARA) – Part of the fun of the holidays is searching out the perfect gift for each person on your list. But if you stretch your finances beyond their limits, your holiday shopping sprees can come back to haunt you later. With some simple precautions, it can be easier to rein in what you spend and still find great gifts.
People tend to spend more when they purchase using credit cards. Keep these things in mind before you pull out the plastic this holiday season:
* You could end up paying more for your gift. If the charged balance is not paid in full, finance charges will add extra costs to the original purchase amount.
* Overspending or maxing out your credit cards on gifts could negatively impact your credit. High outstanding debt accounts for nearly 30 percent of your credit score.
* Discounts can cost you your credit score. Before you accept a discount on your purchase for signing up for a store credit card, remember that simply applying for new accounts may hurt your credit score.
To avoid having to use credit for holiday gift purchases, start saving as early as possible. Mentally mark certain funds as “off limits” for anything other than gift purchases – or even set aside funds in a savings account that you know you won’t touch until shopping time comes. When you’re ready to hit the mall (or the Web), you can set yourself on the path to prudent spending by limiting yourself to a list and setting a budget. Both will help you stay focused on who you’re buying gifts for and how much you planned to spend. If you must use your credit card, only charge what you can afford to repay.
If you do make some missteps, however, there are smarter ways to get your finances back on track after the holidays. Follow these steps to get out of debt faster:
* Don’t ignore your bills. Putting things off might seem like the easiest solution when you’re feeling overwhelmed, but it’s important not to fall into the procrastination trap. If you let your bills slide past the due date, your interest rates might increase, you could incur late fees and late payments will be reported to credit rating agencies.
* Get smarter about paying off your debts. If your holiday purchases spanned multiple cards, you need to figure out a plan to pay down the debt quickly and most efficiently. To help get you started, consider financial products like Debt Wise from Equifax, which can help you prioritize your debts in order to pay them off faster. A Debt Wise Fast Pay Plan can be created online in as little as 10 minutes, and will allow you to automatically track your progress with alerts, tips and tools.
* Go beyond the minimum payment due. The more money paid toward the balances, the faster you can pay off your debts. Or, better yet, pay the balance in full to limit the amount of interest you have to pay every month.
It’s easy to get caught up in the generous spirit of the season, but none of your gift recipients wants you to go into debt on their account. Starting your holiday shopping with some easy-to-follow spending guidelines is the ideal way to approach the gift-giving season – and coming out of it debt free will feel like a present to yourself.
