For many last-minute holiday shoppers, the magic of the gift-giving season can quickly morph into long-term financial misery. Procrastination can lead to panic – and panic can trigger impulse buying, overspending and over-charging on credit cards, a perfect storm that can wreak havoc on your monthly budget and credit scores.
Avoid these common mistakes to prevent last-minute shopping from costing you long-term:
- BUYING INTO “BUY NOW, PAY LATER” STORE FINANCING. Opening a new store account solely to finance a big-ticket item may do a double whammy on your credit scores. First, when you apply for credit, a new inquiry hits your reports – and could lower your scores. Second, if the line of credit you get from the store is equal to the item’s purchase price, you instantly max out the credit limit on that account, which also lowers scores.
- LIVING THE DEFERRED INTEREST DREAM. For those who can’t afford a big-ticket item outright – but expect to have the cash in a few months – a deferred interest financing plan seems perfect. You can buy now and pay no interest if you pay off the full purchase price within a specified timeframe. But if you fail to repay the entire debt within the deferral period, interest charges can be retroactively applied to the full purchase amount, regardless of how much you’ve paid off. And because these plans typically charge exorbitant rates, your deferred interest dream can quickly turn into a nightmare for your monthly budget and credit scores.
- PUSHING THE LIMITS ON YOUR CREDIT CARDS. Being approved for a credit card with a certain limit doesn’t mean you’re all good as long as you don’t go over that amount. In fact, if your credit card balances total more than 30% of your total credit limits, your credit scores are paying the price. People with the highest scores tend to keep their credit balances within 10-15% of their available credit.
- RACKING UP HOLIDAY DEBT YOU CAN’T AFFORD TO CARRY. Make no mistake, even just one 30-day late payment will remain on your credit reports for seven years – and could lower your credit scores. Frequent late payments can cost you loan approval or take thousands of dollars out of your pocket, because consumers with lower credit scores do not get choice interest rates.
Ideally, you should resist the temptation to go off-list and over budget during the gift-giving season. But if you come across a last-minute holiday steal you simply can’t pass up, pay with cash or quickly pay off the credit debt so your credit scores aren’t left holding the bag.