Using Credit Cards at the Holidays

Here at Savings.com, we stress that credit cards are not your best bet when saving money. A 20% off sitewide code is great, but if you're putting that payment on a credit card with a 15% APR, that will basically negate the savings from a coupon. If you don't pay off that bill immediately, you're going to be paying interest for months into the future.

When it comes to Christmas shopping, the same principle applies...and then some. If you carry a balance on your credit card, it's quite likely that you could be paying off this year's holiday gifts well into the next year - if not the whole year round until the next holiday season comes around! If you bought Christmas gifts on credit in 2008 and your credit card is not yet paid off, it's like you're paying for Christmas throughout the year. The answer? Don't pay with credit. Of course, that's not a feasible strategy for everyone.

The fact is this is how people spend at Christmas. They're spending more money at once than they ever do normally - the average holiday spending spree is averaged at about $600 per household. Many people don't have that type of cash laying around, so some (if not all) of those gifts go on interest-bearing plastic (i.e. not debit).

As much as you want to be generous at the holidays, you don't want to max yourself out either. Here are some tips about spending money for the holidays using credit.

1. Set a budget - not just an overall budget, but a cash budget vs. credit budget. How much can you afford to pay with cold hard cash vs. how much do you need to put on credit cards.

2. Save up early - yes, dispensing this advice on November 9th might not be so helpful, but there's no time like the present to start saving. You must have cash reserves on hand at the holidays. Don't be charge-it minded.

3. Determine what sorts of rewards points you can get from certain types of purchases. For instance, do you have a store-affiliated credit card? You're better off putting credit purchases on this card for appropriate purchases and then using cash for gifts that can't earn rewards. It should go without saying that you put Holiday gifts on the card with the lowest APR.

4. Stay within budget even if you can afford to charge more. Just because you have space left in your credit limit to buy more-expensive gifts doesn't mean you should. Remember: it's the thought that counts. Loved ones probably don't want to see you go broke just so they can get a fancy toy.

5. Make a list before you hit the stores. Winging it can lead to impulse buys. If you have a strict list and know how much each thing on the list costs, you'll be much more likely to stay within budget.

6. Use the web. Yeah, this sounds like a plug for Savings, but it's true: you can get bigger discounts when you comparison shop online than when shopping at the local mall. Free shipping + a discount is your best bet.

Most everybody spends more than they should at the holidays. In part, that's what the holidays are about. And by all means, be generous - but not if it's going to cause you financial hardship in the next year. If you're careful about saving money and using your credit cards correctly, you can still be generous and afford it. That might be one of the better Christmas gifts you give to yourself.

Any holiday spending tips out there? Let us know in the comments.