The Grinch that steals Christmas this year could be credit card debt. Lynnette Kahlfani-Cox, chief executive officer and co-founder of AskTheMoneyCoach.com, says getting into debt this holiday season will likely be worse for consumers than it has been in the past.
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“FICO is coming out with something in 2019 called UltraFICO, a new credit scoring system,” she says.
“Some factors that previously hadn’t been included in your credit score can now be a factor. One of them is having cash in your bank account and how well you’ve managed your bank account. Because the amount of credit card debt that you owe accounts for 30 percent of your FICO score, you really don’t want to be out there overspending. Not only is that going to cause you to pay a lot more in interest and set you back in terms of your savings and other goals; it is also going to impact your credit rating.”
Kahlfani-Cox says that’s why it’s more important than ever for consumers to have a plan to avoid holiday debt. The author of the New York Times bestseller “Zero Debt: The Ultimate Guide to Financial Freedom” has five tips for shoppers:
Create a budget
Kahlfani-Cox says a budget is necessary if you want to keep your spending in check. Her advice is to create a list, determine your cash limit and figure out an average amount you can spend on each person.
“So often people go out and spend willy-nilly without having a pre-established plan for how much they can spend in cash, without resorting to plastic, overspending and going into debt,” she says.
Get a budget buddy
Along with creating a budget, Kahlfani-Cox recommends shopping with a budget buddy – a person you take along with you for accountability.
“That’s the person that’s going to drag you if necessary, kicking and screaming out of the store and say -- you’ve hit your limit, it’s time to go,” she says.
Do your research
Just because an item is advertised on sale, it doesn’t mean you are getting the best deal.
“If you haven’t comparison shopped, if you don’t have a baseline of what the cost normally is, that merchandise may not be the very best sell,” Kahlfani-Cox says. “Don’t get tricked by a lot of the marketing. If you are going to spend, at least do the homework on the front end and know that you are truly getting the best pricing.”
While you’re shopping, she recommends using apps and price comparison tools on your smartphone. Browser add-ons can also help when comparison shopping. Browser extensions are plug-ins you can download on web browsers such as Chrome, Firefox or Safari. Some add-ons will send you alerts if the product you are looking at is cheaper on another retailer’s site. Other sites will send you promo codes for products relevant to your purchase.
Take a stopwatch
If you don’t have a budget buddy to help keep your spending in check, you can try using a stopwatch or alarm on your phone.
“What most over spenders and shopaholics find is that they will spend hours upon hours shopping -- they will close out the mall,” Kahlfani-Cox says. “The idea of using a timer on your watch is to say -- I’m going to spend a limited amount of time in the mall. If you limit the time you are spending in stores, that will limit your spending and help keep you out of debt.”
Be smart about credit card usage
If you must use a credit card when shopping, Kahlfani-Cox says it’s important to choose your cards wisely. Use one with zero percent financing or with benefits, such as free hotel stays or frequent flyer miles. Don’t forget to pay the card off in full the next month.
“The reasons you should avoid overspending this holiday season is that it can have a profound impact on your finances in three different ways: your savings, your ability to reach your financial goals and your credit,” she says. “Folks have more debt now than they had in the Great Recession. We really have to learn our lesson and understand the long-term impact of excessive consumption and overspending. All of this debt that people may rack up in 2018 is going to create a financial hangover in 2019.”
Linda Bell joined FOX Business Network (FBN) in 2014 as an assignment editor. She is an award-winning writer of business and financial content. You can follow her on Twitter @lindanbell