3 Holiday Credit Card Traps to Avoid

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The winter giving holidays are upon us — so there’s no better time than now to start thinking about holiday budgets, and how to best manage credit card spending. Every year, many Americans choose to take drastic measures to cover holiday expenses by withdrawing money from their 401(k)s, dipping into their savings, or taking out payday loans.

With this in mind, let’s dive in and cover three holiday credit card traps you’ll want to avoid.

Image source: Getty Images.

1. Going deep into debt

Vacations and the holidays have one thing in common: We’re all a bit looser with our wallets for both, elevating the risk of going into debt. In fact, 56% of Americans have reported that they’ll pile on debt over the holidays, according to figures from NerdWallet.

Keeping out of debt is easier with a plan and when sticking to a budget. Here’s a simple three-step plan to figure out how much you can afford to spend over the holidays:

  1. Estimate your holiday travel expenses: Write down a rough estimate of your travel expenses for the holidays, including airfare, hotel, and gas.
  2. Create a gift-buying list: Create a list of the people you plan to buy gifts for and the estimated dollar amount for each. If the list is longer than a receipt you’d get at the grocery store, it may be smart to whittle it down. Don’t worry, Paul in accounting will feel just as appreciated with a heartfelt thank-you letter in place of a gift.
  3. Figure out how much excess cash you have: Run through a few months of bank statements to figure out how much you typically spend per month, and then estimate your income to determine excess cash you’ll have available. If the excess is less than your total travel and gift-buying expenses, then you may not want to whip out a credit card for the holidays.

If you are already carrying credit card debt into the holiday season, you should prioritize paying off card balances before taking on more debt for holiday expenses. Balance-transfer credit cards with a 0% intro APR are powerful tools to start chipping away at your debt burden. Our picks of the best balance-transfer credit cards include 0% intro APR offers ranging from 15 to 21 months, and some will even waive balance-transfer fees.

2. Forgetting to activate bonus cash-back categories

Many cardholders don’t take full advantage of their credit card perks, even with 5% bonus cash-back credit cards. These cards earn high rates of cash back in quarterly rotating categories, but many require cardholders to activate bonus categories each quarter. Sure, it’s not difficult, but forgetting to do it could leave money on the table.

For example, some of the best cash-back credit cards offer 5% cash back at various holiday retailers , but only when cardholders activate the feature. On many bonus cash-back credit cards, overlooking activation would result in earning a paltry 1% back. Check your account to ensure you’re opted in to receive all card updates, since many cardholders will send email each quarter with a notification.

3. Not using a travel card for travel

In 2016, just under 100 million Americans traveled during the holidays. This massive migration of turkey-hungry, gift-laden families explains why holiday cancellations and delays are an elevated risk.

Most people don’t consider travel protections when booking travel, but embrace it when an inevitable mishap happens. Some travel credit cards pack valuable perks such as these:

  • Trip cancellation insurance
  • Auto-rental collision damage waiver
  • Baggage-delay insurance
  • Trip-delay reimbursement
  • Lost-luggage reimbursement
  • Travel accident insurance

Placing your full travel purchase on a travel credit card that offers these protections will ease any missteps along the way. So it pays off to review your existing travel credit card protections, or consider applying for a high-quality offer. Our picks of the best travel credit cards include a few best-in-class options worth considering.

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