Tis the season to be jolly, right? Well, yes, the holidays are the time to be jolly but not with your credit cards. We know how easy it can be to get caught up in the holiday sprit and end up spending a lot more than you’d ever planned. We also know how sobering it can be in January when those credit card statements start rolling in and it’s like, “Good grief, I don’t remember spending that much! Eeek!”
Your credit score
Before you do get caught up in holiday shopping fever, you need to think about your credit score. You know, that little, three-digit number that governs your credit life? What, you don’t know your credit score? Then you need to get it and you have several options. First, you could go to www.myfico.com and get you FICO score, which is the gold standard of credit scores. You can get it free by signing up for a free trial of the company’s Score Watch program or if you don’t want to bother with this, you could just pay $19.95. Second, you can get your score free from any of the three credit-reporting bureaus – Experian, Equifax and TransUnion or from an independent source like www.creditkarma.com or www.creditsesame.com. We like these last two sites because they offer a good deal of helpful information in addition to a credit score. While, none of these sites can provide your FICO score, the ones they do offer should be near enough to it for you to know how lenders would see you.
Protecting your score
If you have a good credit score of 700 or above, you don’t want your holiday shopping to torpedo it. So, the first thing you need to do is grab a credit card statement and look for two dates – the payment due date and the statement closing date. The payment due date is, of course, the date when your minimum payment is due. That’s not important right now. The important one is your statement closing date. This is the day when your credit card issuer combines all of your charges in your billing cycle. The sum of these charges minus any payments and credits is then your balance due for that month.
What this means is that if your statement closing date is January 30th, all the charges that you made in the previous 30 days going back to December 30th is your statement balance. And this is what’s reported to the three credit bureaus. It also explains why your credit card accounts never have a zero balance on your credit reports – even if you pay them in full each month. If you want to have a zero balance, you have to pay off your card’s balance and then stop using it for one full billing period.
How to use this information
This leads to a strategy you could use to accomplish the same thing. If you pay off your balance owed before the statement’s closing date you will have no balance on your statement. Here’s why. Your statement balance is a combination of your charges, fees and interest minus your payments and credits. If you can make all of them equal $0, your statement balance will be $0. And that $0 balance is what will be reported to the credit bureaus. When your balance of $0 is reported to them your credit card usage and shopping activities will never make it to your credit reports. What it amounts to is that credit scores can’t consider a balance that’s not on your card. And this is how you protect your credit score while still using your credit cards.
It pays to be careful
The only problem with this strategy is that it’s not foolproof. First, if you pay your card in full before the statement date you will sacrifice your grace period. On the other hand, if you need the grace period in order to pay your bills, credit cards might not be for you. Plus, there’s another little problem with the statement closing date strategy. And that’s if you figure your math wrong, you could still be left with a balance that would trigger a statement. You would then have a small balance in your credit reports and would have to make a payment by the actual due date.
What to do if you end up with credit card debt
If you do overspend on your holiday shopping and end up facing a stack of credit card debts in January, there are some things you can do to pay them off. And it’s important you do so. If you have high balances and high finance charges you may find your financial options have become limited and you wallet is being sucked dry. Here are some pay-down strategies that could help you get those debts under control.
First, get organized. Put together all the information on your credit cards. Write down your balances, interest rates, due dates and the minimum payment required by each card.
Do you have numerous balances on lots of different cards? Do you have one huge balance on one credit card and several small ones on your other cards? Have you combined all of your credit card debts onto a single card but are not having any luck reducing the balance?
Step two is to add up all the minimum payments you’re required to make on your credit cards. This will show you how much you must pay every month just to keep current on your credit card bills. Could you pay more than the minimum on one or several of your cards? If you can, you need to do this. Debt can stack up for lots of different reasons.
However, paying your balances down is pretty direct. Just pick one of the three pay-down strategies we are about to reveal and stick with it until you have paid off your balances in full.
The card with the highest APR
One credit card debt pay-down strategy is to first pay off the credit card first that has the highest APR. While you’re doing this, be sure you continue to make the minimum payments required on the rest of your cards. When you’ve paid off the card with the highest interest rate, you will need to start working on the card with the second highest interest rate and so forth.
The best way to do this is by doubling or even tripling the minimum payment on the card that has the highest interest rate. Figure out how big a payment you can afford to make and then do it and stick to it. For example, if you begin by paying $200 on a credit card, continue paying at least $200 every month until you have paid off the card. You also need to make sure you stick with that increased payment amount even as your minimum payments and balance go lower and lower. The aim here is to get your balance to zero. If you ease up on your payments as your balance decreases, this will only slow down your progress.
The card with the lowest balance
A second pay-down strategy is to first pay off the card that has the lowest balance. Of course, you will need to still make the minimum payments on your other cards. Once you’ve paid off the card with the lowest balance, you would then start working on the one with the next lowest balance and so on. This can help you build up some momentum because it’s faster and easier to pay off a $500 balance then at $2000 balance. And it can feel terrific when you’ve paid off a credit card bill in full no matter what its balance was to begin with.
Consolidate your debts on a single card
If you prefer to keep things simple, you might choose this third pay-down strategy. It’s to consolidate all of your credit card debts onto a debt consolidation loan or a single credit card. When you do this, you will be making just one payment a month vs. the multiple ones you’re making now. And you can even make those payments automatic so you would never have be afraid of paying late. Just be sure that when you move your debts to a new card, you choose a payment amount that’s much more than the monthly minimum required.
What to buy?
If you’re having a problem deciding to buy some of the family members and friends on your Christmas shopping list, here’s an infographic that includes the top most popular wish list items as well as interesting information on how much money people plan on spending.
