How to Protect Your Credit and Pay Down Your Debt from the Holidays

The beauty of buying on credit during the holidays is that you can purchase whatever you can’t afford at that particular moment. However, after all the gifts are opened, and you get back to real life, that credit card debt still need to be paid.

Failure to pay on time — or failure to pay at all — can do serious damage to your credit score. These types of slip-ups can ultimately result in less available credit and higher interest rates on future loans. That is, if you’re able to get a mortgage, auto, or student loan at all.

There are things you can do prior to the holidays to avoid this situation, such as saving, budgeting and/or paying exclusively with cash or a debit card. But, for many of us, credit cards are a convenient stop-gap. Add the ease of one-click mobile and online payments using Apple Pay, Google Pay, etc. and impulse buying from your desk or couch has never been easier.

In fact, according to MarketWatch, 65% of those shoppers who took on additional debt during the 2016 holiday season did so unexpectedly. Average credit card debt for the 2016 holiday season was $1,003 up from $986 the previous year. While this may not seem like an unmanageable amount of debt, it’s important to remember that American households are already carrying $16,061 in credit card debt on average.

So, how do you pay off holiday debt in a systematic way that won’t cripple you financially and won’t damage your FICO score? Here are a few tips:

While Shopping

• Set a budget for your shopping and stick to it
• Keep track of your purchases and save all receipts to be sure you stay on budget
• Use your lowest interest rate credit card
• Don’t sign up for department store cards to save 10 or 20 percent. These cards traditionally have a higher interest rate and are likely to impact your credit rating adversely.

After the Holidays

Try not to open a new line of credit to pay off existing credit card balances. If you do choose to consolidate, be sure to do so using a card with the lowest possible rate. Beware of teaser offers that expire. If you haven’t paid down the debt by the time the offer expires, you’ll find yourself paying even more for those holiday purchases.

If you can’t pay off a card entirely, take them one at a time and double the minimum amount owed until your balance is zero. Then, move on to the next card. Once you’ve caught up, either get back on your budget or stop using the cards entirely. But, don’t cancel them—they are an important part of your credit history.

Bouncing back financially after the holiday season is hard, but not impossible. Pay down your remaining debt diligently now, and you’ll be in good shape to enter the festive gift-buying season next year with a plan.