Millions of Americans are scrambling to buy gifts for their families and friends. It’s a holiday tradition. But whipping out your wallet without a solid spending plan can get you into serious trouble.
It’s not too late to establish some ground rules for your holiday spending.
Set (and stick to) a spending limit.
To get a realistic sense of how much cash you can shell out for gifts, take a close look at your checking account balance. First, budget for recurring costs such as rent and groceries and bills coming up—you have to keep paying those. Then allocate a portion of what’s left over to finish your holiday shopping.
Your spending limit shouldn’t be flexible. If it is, you might be tempted to exceed it. To avoid that scenario, take your plan a step further by deciding who you still need to buy for and setting a specific budget for each person’s gift.
Be wary of store-brand credit cards.
Signing up for a store credit card can help you land special deals, but it might not be the smartest long-term investment. That’s because this type of plastic typically comes with high interest rates, which can increase the difficulty of making good on unpaid balances. That, in turn, will put a noticeable dent in your credit score, which will make it harder to qualify for the best rates on future credit cards and loans.
You probably already own a credit card issued by a financial institution like Utah First Credit Union. Use that card for your shopping trips — within the spending limits you’ve already set up. Newly introduced chip technology makes in-person transactions more secure, and using your card regularly will help you earn rewards that you might be able to use for additional gifts.
Look out for online shopping scams.
Online shopping fraud is expected to increase at the end of year, according to NerdWallet’s credit fraud data. Don’t click on links embedded in email messages that promise deals that are too good to be true, and only buy from websites that pass a simple eye-test. If a site doesn’t look professional, buy the item you want from a more legitimate vendor.
Celebrating the holidays is often a one-way road to fresh debt. But it doesn’t have to be that way. With a little planning, you can enjoy the upcoming month without straining your checking account. Just be sure to set a spending limit, avoid store-brand credit cards and keep an eye out for scams.
Tony Armstrong, NerdWallet
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