According to the National Retail Federation (NRF), the average American is expected to have spent $973.16 on holiday gifts in 2017. That’s up about 3.5 percent from what it was last year. And while the data from the 2017 holiday shopping season hasn’t been finalized yet, the NRF expects to see between a 3.5 and 4 percent increase in total amount spent compared to 2016. If this projection holds true, Americans will have spent up to $682 billion in holiday goods and merchandise.
With the economy booming and a bull market going strong, it’s no surprise that Americans are spending more and more on holiday goods. And when you consider the fact that many people get caught up in the magic of the season and don’t flinch at the prospect of going over budget, it’s not uncommon for consumers to spend above and beyond the $973.16 average.
While some consumers have the financial means necessary to pay for everything in cash upfront, others don’t and can carry credit card debt into the new year. That’s not necessarily a bad thing — unless you let the debt snowball to the point where it hampers your credit score.
On that note, here’s a closer look at the steps to take after the holiday shopping season to ensure that your credit score doesn’t take a costly dip.
First things first, you need to assess the damage that you’ve done. Hopefully, you only used one or two credit cards, and didn’t open up any new ones to pay for gifts.
If you have multiple credit cards to pay down, this step gets a little more complicated. As you total up what you spent — and what you owe — one key thing you should worry about is keeping your credit utilization ratio at or below 30 percent. The credit utilization ratio is essentially your total credit allotment versus the total amount of debt you’ve racked up.
For example, if you only have one credit card with a maximum balance of $10,000, you want to only have about $3,000 worth of debt on it. If you have two credit cards with a total allotment of $20,000, make sure your balance isn’t higher than $6,000 between each of them. Keeping your credit utilization ratio at or below 30 percent prevents your credit score from dipping.
Beyond ensuring that your credit utilization score isn’t hurting your score, here are some other tips to keep in mind:
Know when payments are due: About 35 percent of your FICO credit score is based on your payment history. This is the largest single category that impacts the overall formula, so it’s absolutely crucial to make sure that you’re making on time payments, even if you’re only making the minimum payment for the time being. Set up automatic payments, program alerts or reminders on your smartphone, just do whatever you have to do to make sure you’re making payments on time. If you don’t, it’s going to cost your credit score.
Have a plan: As long as your credit utilization score is at or below 30 percent and you make on time payments, your credit score isn’t likely to suffer. But, who wants to live with constant credit card debt? That said, if you’ve gone over your holiday spending budget, make sure you know how you’re going to account for the extra debt you accrued. Perhaps you can use a holiday work bonus or part of your upcoming tax return to pay off any debt? Or maybe you’re just going to cut back on spending or live without a few luxuries until you can get your credit cards back to zero balance? It doesn’t matter how you do it, just be sure to have a payment plan in place.
Save for next year: Too few consumers actually do this, but we can’t stress how satisfying it can be to have the money for all of your holiday shopping before you even purchase the first gift. Yes, we recommend you save monthly for your holiday gift giving. You’ll be glad you did it when you’re not trying to climb out of debt after Christmas has come and gone.
Bottom line: If you’re in debt this year after the holidays, let it be a lesson to you moving forward.
Regards,
Ethan Warrick
Editor
Wealth Authority
