The holiday shopping season is underway for many of us, and if you’re like me, you get a little stressed by all the spending that goes on this time of year. Ideally, we can pay for all our holiday expenses with cash, but this is not always an option. If you’re planning to use credit cards for some of your holiday purchases, here are a few tips to help you prevent financial stress in the coming months. Use Cards to Your Advantage Credit cards sometimes have a bad reputation for getting people into trouble with overspending, but having the right card for your shopping needs and using it responsibly can actually work to your benefit. Using credit cards responsibly can help you establish and maintain a positive credit score, which may influence your life in a multitude of areas — credit scores are used by lenders, employers, insurance companies, landlords and many others to determine what services they offer you and how much you’ll pay for them. In addition to impacting your credit score, credit cards can provide you with rewards, perks and other benefits — your card may even save you money. If you’ll be traveling this holiday season, keep in mind that some credit cards offer free travel accident insurance, auto rental damage coverage, fraud protection and other perks when you pay for your purchases using your card. Know Your Spending Habits This holiday season, will you be making purchases you know will take some time to pay off? If you’ll be carrying a balance on your credit card, you’ll likely benefit most from a low-rate card. The lower the interest rate, the easier it will be for you to pay off your debt quickly and avoid feeling overwhelmed. Or, will you make purchases you know you can pay in full within a set timeframe? If so, a credit card that provides cash back or other rewards may make the most sense for you. Choose the Right Rewards If you prefer to use a rewards credit card, you’ll want to find a card that makes sense for what you buy and how you spend. If you’re not much of a traveler, a credit card that offers airline miles or other travel perks won’t benefit you much. However, if you consistently spend money on certain expenses — buying gas, for example — then credit cards that provide specific types of rewards may be your best bet. Do you spend money on a wide variety of purchases, as many of us do around the holidays? A card that offers straight cash back or several reward options would probably be best for you. When using rewards credit cards, it’s important to check for any potential restrictions on your rewards or minimum spending limits. Some cards place limits or expirations on the rewards you earn or require you to spend a certain amount before you’ll receive rewards. Read the Terms All credit card issuers are required to provide the full terms and costs associated with their cards. Be sure to check out the rates, terms and potential fees of any card you’re considering using this holiday season. Some key Things to Consider: Interest rates: Your interest rate, or annual percentage rate (APR), will likely depend largely on your credit score, with most cards offering a range of rates. In most cases, the higher your credit score, the lower the APR you’ll receive. Retail cards issued by stores and other merchants typically have higher rates than what you’ll receive from other credit card issuers. Annual fees: If you’ll be charged an annual fee for your credit card, the rewards you earn each year from using the card must be greater than the annual fee, or else it’s not worth carrying that card. Keep in mind that there are many cards — including rewards cards — available without annual fees. Introductory and limited-time rates: You may come across credit cards that offer low rates — even 0 percent—for purchases made and/or paid off within a certain time frame. If you plan ahead, these special rates may save you money, but you will want to be very careful to keep track of when your rate will increase and by how much. To avoid paying a higher interest rate, pay off your purchases before any special financing periods expire. Keep in mind that this will almost always require you to make higher monthly payments than the minimum amounts required. If you cannot pay off your purchases in full during the special financing period, you’re likely going to pay less interest just using a low-rate credit card for your shopping. Remember, one of the best gifts you can give yourself and your family this year is to avoid excessive debt, overspending and the stress that goes along with these. If you’ll be using a credit card this holiday season, establish how much you can buy on credit without causing post-holiday stress, and use cards that will work to your advantage. Happy holidays!
April Clobes is Executive Vice President/Chief Operating Officer for MSU Federal Credit Union in East Lansing. She can be contacted by e-mail or by calling (517) 333-2254.