(ARA) – In the aftermath of the Great Recession, one good money habit seems to be sticking around: swiping plastic less. In fact, a recent survey by USAA found more than half of shoppers don’t plan to use a credit card at all this holiday shopping season.
However, the same survey found that two in five consumers still plan to use their credit card this year. “While it’s good to see people are relying less on credit for holiday shopping, using a credit card is not always a financial faux pas,” says Joseph Montanaro, financial planner for USAA. “But you have to use them wisely, rather than as a crutch to spend more than you can afford.”
Here are four excuses to pull out your plastic this holiday season and tips for doing so responsibly.
Reap rewards.
It’s likely that you chose a particular credit card, in part, for its rewards program, and the holiday shopping season can be an ideal time to maximize that benefit. In fact, 26 percent who plan to use a credit card this holiday season say they will do so because they want to gain reward points.
Montanaro notes that taking advantage of credit card rewards programs is one way to make your credit card work for you. “The trick, then, is to immediately pay off the balance to avoid accruing interest,” he says.
According to the National Retail Federation, consumers spent on average approximately $680 on holiday purchases in 2009. If charged to a credit card, it would take an average of four and a half years to pay off the balance by making the minimum monthly payment. Plus, you would pay more than 40 percent of the original purchase total – or nearly $280 – just in finance charges.
The good news – the majority of those surveyed who plan to use a credit card for holiday purchases this year say they will pay off their balance immediately or within a few months, and 85 percent of those who used credit to purchase holiday items in 2009 say they have already paid off their balance.
2. Boost your credit score.
Using a credit card at least a few times per year can help keep your credit score in good standing. Even if you’ve already saved money to pay for holiday purchases, the holidays can provide an opportunity to use a dormant credit card.
“Half of the people we surveyed indicated they saved diligently or a little here and there throughout the year,” says Montanaro. “This means you can make your purchases using your credit card and then immediately pay off the balance – and hopefully get some reward points too.”
3. Get protected.
Only 6 percent of consumers indicated they will use a credit card this year because of purchase protection or extended warranty. But not taking advantage of these programs could be a mistake, especially when buying big ticket items like jewelry or electronics. If that game console you just bought for several hundred dollars on your credit card is stolen or turns out to be a lemon, this benefit could help to replace or repair your purchase and provide peace of mind,” says Montanaro.
4. Don’t forget the debit.
Don’t forget about that other form of plastic: your debit card. It can provide the best of both worlds, with some offering credit card-style rewards programs and the built-in spending limits of cash. According to the USAA survey, a majority of consumers are planning to use some form of cash this year – like debit cards, checks, dollar bills or layaway programs – but less than half plan to use a debit card for their purchases.
Another reason to consider using debit: safety. With 45 percent of those who plan to use some form of cash indicating they are most likely to use good old-fashioned dollar bills this holiday season, using a debit card can provide a safer alternative to carrying around $300 of cash in your wallet.
While using plastic can provide opportunities to make your money work harder for you, Montanaro recommends one golden rule to keep in mind. “Using a credit card does not provide an excuse to spend beyond your means,” he says. This serves as an important reminder, given that nearly one in five of those planning to use a credit card will do so because they don’t have enough cash to cover their purchases right now.
“This is a classic example of how not to use a credit card,” says Montanaro. “Good intentions can go astray quickly, so avoid overspending by having a budget, making a shopping list and sticking to it.”
