Holiday Credit Card Spending: Great Idea or Potential Disaster? | Photo of people shopping during the holidays | Photo by Daye Deura

Daye Deura

Holiday Credit Card Spending: Great Idea or Potential Disaster?

•  4 minute read

Is it a smart idea to use a credit card for holiday shopping, or a terrible one? The answer isn't as simple as you'd think.

The holidays are just around the corner. And while we’re all getting in the holiday spirit, your wallet may be trembling in fear. Between gifts and parties, the holiday season is one of the most expensive times of the year. While you’re out gift shopping, you may be wondering, “How am I going to pay for this?”

You might find yourself falling into the mindset of “I’ll put it on my credit cards and deal with it later.”

While this may ease your mind, for the time being, it might not be the best decision in the long run. That said, the answer to “Should I use my credit cards for holiday shopping?” isn’t necessarily a simple yes or no. So here are a few things to consider before swiping.

 

Pre-Existing Debt

If you’re currently carrying a balance on your credit cards, you might want to steer clear of using them for your holiday shopping.

With a manageable balance, you might be able to pay it down to a comfortable level before your holiday shopping. However, if your debt is already out of control, using your credit cards during the holidays will only compound the issue. You’ll be putting debt on top of debt and digging yourself further into the hole.

You might be thinking, “I already have debt, so it doesn’t matter if I add a little more.” But remember that debt accrues interest. So you’re actually spending more and more money with the increased debt that you have. Even that little bit will make a big difference.

Cash is the safest way to shop if you are looking to keep bills down and stick to a budget.

The best way to prevent overspending is to bring your ideal limit with you in cash and leave the cards behind!

 

Store Credit Cards

The holiday season brings the temptation of opening store credit cards. Retail cards often offer enticing introductory deals at this time of year. For example, you might be offered a certain percentage off your purchase by opening the card. And if you’re making a lot of your gift purchases from the same store, this may sound like a good deal.

However, store credit cards come with some of the highest interest rates. So carrying any balance at all on these cards can mean rapidly growing debt.

Additionally, having too many credit cards can be detrimental to your credit score. The more credit applications you submit, the more desperate for credit you appear to lenders. So you may be best off steering clear of the store credit cards.

 

Rewards Points

One of the benefits of using credit cards, however, is the potential to make some money back with cash-back or rewards points. The holidays are a time when you might be making big-ticket purchases or spending a lot at once. This is when you can typically maximize your credit card points.

Your credit card might also offer deals for specific retailers, which can help you save. Both options can be smart, money-saving decisions.

However, you should take advantage of these benefits only if you can pay your balance off right away.

The best way to keep track of this is to make a payment for the amount you spent as soon as you get home from shopping.

If you’re not paying off your balance right away, you essentially negate the value of the points you earned. The interest you’re accruing is likely costing you more than what you saved.

 

The Benefits of Cash

Instead of using credit cards, consider going cash only for your holiday shopping. Cash is the safest way to shop if you are looking to keep bills down and stick to a budget. Once you’ve set a budget for what you want to spend, cash can help you stick to it. If you go shopping with a certain amount, you’ll be able to see what you’re spending physically.

Mapping out what you plan to purchase will prevent you from going over your total allotted budget. Consider bringing a little bit over the amount you estimated ($50, max), but under your total gift-buying budget. This will ensure you have enough money for tax and any minimal, but unexpected, purchases (batteries for a toy, etc.).

Plus, cash doesn’t accrue interest. What you spend that day is what you spend. It’s paid for and over with. You won’t still be paying it off months down the road. Using cash is a sound way to avoid going into debt during the holiday season.

 

The Verdict on Holiday Credit Card Spending

Holiday shopping can certainly put a strain on your budget. As a result, it might be natural to turn to credit cards to pay off the purchases over time. While paying with credit cards does have some benefits — like the ability to earn points — it might be wise to avoid them for holiday shopping.

Retail credit cards in particular, with their high interest rates, can be dangerous for your financial situation. Additionally, if you’re already in debt, piling onto it will be detrimental.

The bottom line: If you can’t pay your balance off right away, it might be best to pay using a different method. By thinking critically about how you’ll pay for your holiday purchases, you’ll be able to enjoy the most wonderful time of the year. Remember, the holiday season is a great time to give gifts to your loved ones, but you don’t need to go into debt to do so.