Use Credit Wisely During The Giving Season

The ideal is to get through the seasonal spending

frenzy with your credit untouched. But many Americans fall short of that ideal. Second best is to be wary and wise as you whip out the plastic as needed. In a preview survey, the National Retail Federation learned that about 38 percent of consumers planned to use credit to fund their Christmas purchases. That’s a 28.5 percent rise over last year.

Don’t start without planning ahead. Set yourself a limit and make a budget that will allow you to pay off the accumulated bills as quickly as possible. Carrying high balances on your cards may lower your credit score, which could have repercussions if you plan any big purchases (home or car, for instance) in the near future.

Credit card issuers add to the temptation by offering seasonal specials with discounts and interest rate grace periods. But don’t count on these come-ons to offset the cost of credit. No company will offer enough to offset the interest they expect to earn. Before you climb on the bandwagon, be certain you are fully aware of the details. Read the fine print.

Examples, according to an Associated Press article, are the deals offered by Macy’s and Kohl’s. At Macy’s approved customers get a card that offers a variety of discounts. Macy’s customers can get up to 20 percent off items, but the offer maxes out at $100. At Kohl’s you can get a card account that gives 15 percent off your next purchase, plus a 20 percent discount when the card is received. The card also promises at least 12 annual discounts ranging from 15 to 30 percent on select items.

But Macy’s asks an annual percentage rate of 24.5 percent and Kohl’s 23.99 percent. In either case, the interest may outweigh the discounts.

Cards that offer no-interest purchases for a year of more may save money over time,but beware that a single missed or late payment could nullify the deal, making the initial savings ineffective. At that point, a high interest rate kicks in. If you opt for such a card, take the amount you wish to purchase with the card and divide it into regular payments within the grace period. If you can’t do that comfortably, you probably don’t need the card.

If your current card includes awards, possibly now is the time to use them to buy gifts. Some plans let you cash in your awards or give credit against your balance or special deals at a point redemption store. Take advantage, if you can, to use a point store to accommodate that gift list.

Creating a repayment plan can help to put the brakes on spending. And after the holidays, if you find you can make small payments twice a month, or increase the usual payment, do so. That will help take the sting out of interest. Most card issuers charge you interest based on your average daily balance. Micro payments can reduce those costs.