With the holiday season a month away, consumers are gearing up for their big spending spree of the year.
According to Deloitte, Americans spend nearly $1,500 during the holiday season. In 2023, Deloitte projects an increase in retail sales of 3.5% to 4.6%, with E-commerce sales projected to increase 10.3% to 12.8%.
It seems despite inflation, festive retail spirit is looking strong. So where are Americans getting $1,500 to spend on holly and jolly? Their credit cards.
A 2022 LendingTree survey found 35% of Americans took on credit card debt to pay for their holiday purchases. Credit card debt to the tune of $1,549.
Research from WalletHub found Colorado ranked 18th highest in national credit card debt, coming in at $8,644 per household.
If you’re a Longmonter considering charging gifts, party outfits or family meals to your credit card, here are some things you need to know:
Keep credit utilization in mind
According to Experian, 30% of your credit score is impacted by your credit utilization, or, the “...percentage of the available credit on your credit cards that you're using at a given time.”
For example: if you have a credit card with a limit of $6,000 and you’ve charged $420, you’re using 7% of your credit. If you “max out” your credit card, using $6,000 of your $6,000 of available credit, you have a 100% credit utilization.
Credit utilization follows the 30% recommendation, which simply suggests using 30% or less of your available credit, according to NerdWallet. The sweet spot is typically between 1-7%, with 30% being the maximum.
Credit utilization is the second largest factor in determining your credit score, behind payment history, which means if you max out your credit card, your score will be affected.
A secondary effect of maxing out your credit card are the increased monthly payments on top of the credit card’s interest rate as outlined in the card’s terms and conditions.
Have a holiday budget
According to CapitalOne, holiday budgets, “give you more time to plan your purchases with savings in mind, which means less risk of going into debt.”
Having a plan before you start spending during the holiday season will help you understand where your money is coming from, where it’s going, and how to mitigate the risk of going into credit card debt.
Include gifts, shipping, holiday parties, food, drinks, clothing, winter activities and anything else you think you’ll spend money on in your holiday budget. Leave no stone unturned!
Make a plan to cash-flow, or pay for the majority of your holiday expenses without credit cards, so you limit what you charge to plastic.
Look into alternative gifts
Gifts don’t have to be material objects — they can also encompass local attractions, educational experiences and creating memories aligned with your values.
A few examples of these alternative gift ideas are aquarium or museum memberships, donations to causes you care about, or visiting places in your community you’ve never explored.
“When you buy a membership you are joining nearly 1,000 other people in our community in saying that the museum is an important cultural asset. Members support museum programs and exhibits, providing funds that ensure quality and excellence across the institution,” said Erik Mason, museum director of Longmont Museum.
Have a credit card debt payoff plan
If you find yourself in credit card debt, the best thing you can do is have a debt payoff plan.
According to Bankrate’s Minimum Payment Calculator, paying the minimum payment of $165 per month on a credit card, with a $6,000 balance and an interest rate of 21%, will take you over 24 years to pay off and cost you over $9,000 in total. This is why debt payoff plans are essential to financial health.
Prioritize high-interest debt, like credit cards, and focus on paying more than the minimum payments per month. This way you avoid overpaying on interest and you can begin to map out a plan to avoid credit cards altogether for future holiday seasons.
