Overspending this Holiday Season Could be Your Worst Nightmare

Overspending this Holiday Season Could be Your Worst Nightmare

Written by Caitlin Wood
Last Updated October 19, 2020

With the constant threat of identity theft and security breaches at our favourite stores, shopping during the holiday can sometimes seem like a huge risk, one that might not be worth it in the end. Unfortunately security breaches and identity theft are always a hidden risk no matter the time of year. This years, your biggest holiday shopping problem might be staring back at you when you look in the mirror.

Spending more than you can afford is an age old issue, it was around before credit cards, identity theft and security breaches, yet it could still be your biggest nightmare this holiday season. Once your holiday shopping list has been made and it’s even longer than last year’s creating a budget and sticking to it will probably seem like and impossible feat. The issues and stress caused by trying to stick within your budget this month will be nothing compared to the pain you’ll be in when you’re paying for your Christmas expenses well after the new year.

This year don’t let you credit card statement be the gift that keeps on taking, not only will you become bogged down by the interest you’ll have to pay but your credit score could be hurt as well. Here’s how to make sure your holiday shopping doesn’t become your holiday nightmare.

How Will it Hurt Your Credit

How much of your credit you use compared to how much is actually available for you to use is the second biggest factor used to calculate your credit score, basically maxed out credit cards are the worst case scenario. If your credit score was a person they would be your really nosey neighbour who likes to know everything and then uses that information to form an opinion about you. In the case of your credit score, the ratio of your available credit and used credit lets the credit bureaus form an opinion about your credit worthiness. The less available credit you use the better.

With the holiday sales in full swing you’re probably looking for ways to increase your buying power, more income or even more credit. While some people might think that increasing their current card’s limit or opening a new credit account is the last thing they should be doing you’ll be surprised to know that it might be worth it. Of course this is all relative to your personal situation and you’ll need to be smart and extra responsible with your new credit.

If you can find a new credit card with a great interest rate and possible perks then it could potentially help you raise your current credit score. What this does is increase your available credit which in turn will make your credit utilization ratio not so high anymore. The catch is, if you max out your new credit card you’ll just be in the same place again and the whole process of obtaining new credit will have been useless. Try to keep the percentage of your used credit to about 10% of your total available credit, this should keep your credit score from plummeting this holiday season.

Take Control of Your Spending

Credit cards are great and new cards with new balances are even better especially during the holiday season. Credit cards can help you make that big purchase you’ve been saving to make all year and they can help you easily do all your holiday shopping online far away from all the busy stores, but credit cards are only really helpful when they’re used responsibly.

No one wants to be extra responsible during the festive season, especially when it comes to shopping for the perfect gifts for friends and family members. But guess what? This time of year requires and almost demands credit responsibility. Unfortunately there should be no exceptions when it comes to holiday shopping, if your credit cards carry a balance then you need to be making payments that are more than the minimum required and you shouldn’t be charging more than you can afford to pay off in full in the very near future.

Make a Budget and Stick to it

Even if you’re able to increase your available credit to prevent your credit score from being negativity affected, you should still create a budget and stick to it. Picking out the perfect gift for your friends and family members can be one of the best and most fulfilling parts of the holiday season, don’t let the stress of maxed out credit cards and low credit score ruin it for you. Think about your credit as a financial tool that can either help you or hurt you. Use your credit to build a high credit score and stick to your budget and then reap the benefits all year long.

Think About the Future

If you still find yourself making irresponsible financial choices and you can’t quite seem to come to terms with your budget then think about the future. The problem with credit cards is that they allow to you make rash decisions and spontaneous purchases, but if you stop even for a minute and think about what you’re about to do and how it will affect your future both the near and distant you’ll probably make a much better choice. People don’t often realise that their financial mistakes will continue to haunt them for years to come. So this holiday season think twice and let your good credit score be the gift you give yourself.

Caitlin is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security. One of the main ways she’s built good financial habits is by budgeting and tracking her spending through the YNAB budgeting app. She also automates her savings so she never forgets to put aside a portion of her income into her TFSA. She believes investing and passive income is key to earning financial freedom. She also uses her Aeroplan TD credit card to collect Aeroplan points so that she can save money when she travels.

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