5 credit card no-no’s during the holiday season

December 21st, 2012 Kathy Cohea

Ho-ho-ho!  It’s the holiday season when we all tend to spend more money. The truth is, buying gifts, decorations and food for holiday gatherings can be a wonderful, joyful experience. The important thing, though, is to make sure you spend your money wisely, and don’t create a huge financial hole you and your family have to spend months recovering from.

One of the biggest ways people create those financial holes is by using credit cards in financially damaging ways. We’ve put together a list of five important things to keep in mind about credit cards when you’re out holiday shopping.

1. Don’t run up a ton of additional debt on your credit cards.

It’s not horrible to add a bit of debt to your credit cards, but avoid charging big amounts – more than you can actually afford. Unless you have the cash to pay off the balances the next month, you’ll be stuck with higher monthly payments, pay more in interest and may even downgrade your credit rating. The smartest approach of all is to make sure whatever you charge for holiday purchases, you pay off in full when you get the bill.

2. Leave your credit cards at home when holiday shopping.

This is one of the best strategies to holiday credit card use! When you’re out shopping, it’s just too easy to put a purchase on a credit card – in many ways, you don’t even feel like you’re spending the money. By leaving your credit cards at home, you’ll have to pay with real cash or use your debit card – and that means you’re only spending money you actually have, not “plastic money.”

3. Avoid signing up for “special offer” in-store credit cards.

Many national chains offer instant credit cards during the holiday season. This may seem like a nice deal, but in the end, it can cost you a lot. By accepting the in-store credit card, you’ll probably spend more money than you planned, (that’s why they offer them) and unless you pay it off immediately, you’ll be deeper in debt. Plus, applying for a new credit card can negatively affect your credit score, and raise the interest rates on your other credit cards. So it’s usually best just to pass on the special offer credit cards during the holiday season.

4. Check the interest rate on your credit cards.

Many people do use credit cards during the holidays, but really have no idea what interest they’re paying. If you’re going to put purchases on a credit card and not pay them off immediately, then it’s important – and smarter – to use your credit card with the lowest interest rate. Check out each of your credit cards interest rates, and only use the lowest rate card. Put the others away!

5. Be careful about interest free credit offers.

We’ve all seen the cash advance offers with zero interest for a specific time period. Many credit cards offer an initial zero percent interest rate for a limited time, then a much higher rate. Plus, in-store credit cards often give you zero interest for six to 12 months. The real danger is if you don’t pay off the balances during the “zero interest” time period, it could cost you a huge amount. Many credit cards actually add up the interest, and if you don’t pay off the balance by the deadline, then all the accumulated interest is added to your debt. Ouch! Interest free offers are good, as long as you make sure you pay them off on time.

It’s fun to shop during the holiday season. But it’s important to think ahead, too. Enjoy your shopping sprees, and follow these credit card tips. That way, you’ll not just have a happy holiday season, you’ll have a much nicer financial new year!

Kathy Cohea

About the author

Kathy Cohea is Assistant Retail Manager at MidWestOne Bank. She helps customers with checking and savings accounts, consumer loans, auto loans and home equity loans.

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