It's time for the holidays. It's time to party, have fun, and be happy. Plans have been made for travel, lists of gifts for family and friends have been made, and parties are in full swing. It is the time of year to be happy, but it is also the time of year when spending goes crazy.
Most business people take advantage of the holidays to make as much money as possible. It will be their busy time. They will buy more and charge more, and they will be happy all the way to the bank. They know that people will suspend themselves with less restraint than ever before. You may be one of the many people who have experienced financial stress after the holidays and want to make sure it doesn't happen again. How well you do this will depend on how well you handle three important things: the rate at which you spend more, how you pay for that spending, and the heavy financial demands that come the next month.
Financing Using Plastic
People often find that they haven't saved enough money for holidays like Christmas or the New Year because they come around so quickly. Also, budgeting is a foreign idea during this time, and spending can get out of hand. The credit card is an obvious way to make up for the inevitable shortfall in money. When you use the card to pay for things, there are some benefits:
I You can use about a month's worth of credit for free.
ii) It gives you a short-term way to spend more than you can afford.
iii) It lets you keep track of how much you spend.
iv) You don't have to carry around a lot of cash.
Using credit cards, on the other hand, can be very dangerous if you don't keep an eye on it. Research shows that when you use a credit card instead of cash, your spending could go up by up to 35%. Here are some important tips to keep you from getting into trouble with credit card debt.
- Spending Plan
If you're going to spend more than you make during the holiday month, you might want to cut planned holiday spending or other spending to stay within your income. I assume you have made a plan for how much you will spend during that time. A credit card comes in handy at this point. Even though it's not obvious, using your credit card can make it hard to keep track of your money. If you don't keep track of your cash and credit spending, you might not know if you're living within your means. So, it wouldn't be smart to start using a credit card if you don't know how to handle your money, which means making a spending plan.
- Ratio of debt to income
Don't forget that every time you use your credit card, your debt goes up. One of the most important things to keep an eye on when managing your finances is your debt-to-income ratio. This shows how much of your monthly income, after taxes, goes toward paying off debt each month. If it's too high, it's a red flag that you have too much debt. A ratio of more than 20 percent is not good for your health. If you already owe money on your credit cards, don't add to it.
- Financing the gap
Using a credit card is a good way to get short-term money for your business. That means you have to pay off any credit card debt within a few days. Not just paying the minimum balance. If you aren't sure you can pay it off in full, you would do yourself a huge favour by not using a credit card. If you decide to use a card, you need to be ready to pay more in interest and fees because you are giving yourself more credit. This adds to your costs, so you need to be ready to cut back on other regular expenses to make room. If you don't, you could end up with a lot of hard-core debt.
- Your wealth
During the holiday season, most credit card debt is used for consumer spending, like paying for your vacation, buying gifts, going out, travelling, etc. This is called "consumer debt." This kind of debt adds to your liabilities but does not add to your assets. The amount of consumer debt you have lowers your net worth. Your financial health won't improve if your net worth goes down. So do have a happy holiday. But pay for it in a way that gives you peace of mind that you won't have a lot of debt the next month.
