Budgeting during the holiday season is necessary to avoid racking up significant credit card debt. However, this can be challenging for many Americans who are already carrying high balances and trying to chip away at the outstanding amounts. Many Americans have said that this holiday season, they will focus more heavily on trying to stay within budget and keeping their debt manageable, rather than spending heavily, according to a new survey.
The results of the latest myFico study reveals that credit card debt remains consumers’ #1 concern as the new year approaches, and holiday spending may only exacerbate this anxiety. In response, roughly one-third of respondents say they will curb holiday spending this year. For those who plan to use credit cards to make purchases, many noted that they will take a frugal approach. Sixty-five percent said they plan to spend $500 or less on their credit accounts, which will enable them to remain within their holiday budgets.
Keeping credit manageable during the holidays
Credit can be a convenient way to purchase items for loved ones and cover other related costs. However, it’s easy to get carried away with these purchases and overspend, which can leave consumers with a debt hangover and regret when the new year arrives. To combat this scenario, individuals should try to budget for their gifts with the cash they have on hand. Relying on sales, going in on gifts with family members, and shopping with a list are effective ways to keep costs low and budget them into a person’s pay.
Paying with cash is another way to manage spending. Studies show that consumers are less likely to overspend when they pay with dollar bills, rather than debit or credit cards, namely because they tend to cut back when they see the money physically leaving their wallets.
Those who plan to use credit during the holidays should keep a few rules in mind to avoid damaging their scores and facing significant debt. Consumers should try to keep balances below 30 percent of their available credit limits. Not only will this help ensure that their balances are reasonable, but it may also keep their utilization rate low. A person’s utilization rate – the ratio of credit card balances versus total available credit limits – makes up 30 percent of their FICO score, and the lower this ratio is, the better.
In addition, consumers should stay on top of payments this holiday season. While paying off the full amount each billing cycle is ideal, those who are unable to do so should try to pay more than the minimum amount due to stay in good financial standing.