Why and how you should use your credit card for holiday spending

Traditionally, Thanksgiving is a day of celebration, giving thanks and spending time with loved ones. It is the “unofficial” but well recognized kickoff to the holiday season, marked by parades, football games and lots of food. In recent years, it has also come to symbolize something else, something much more commercial…the start of the seasonal spending blitz—Black Friday.

Let’s face it, for most of us, our spending ramps up in November and December. We largely attribute it to the gifts we buy and the parties we plan. What we often overlook are the peripheral expenses—decorations, extra family dinners and breakfasts, spirits, travel and charitable donations. The result: we spend more than we want and often accrue debt.

This holiday season, you can avoid the headache of losing control of your spending by setting a limit, making a plan for how you will handle payments and tracking expenses so you don’t exceed your budget. The tool for helping you accomplish all of this—your credit card.

Make credit a tool, not a vice

According to the National Retail Federation’s Holiday Consumer Spending Survey, the average person celebrating Christmas, Kwanzaa and/or Hanukkah will spend $804.42 in 2014—up nearly 5 percent from last year’s projection of $767.27.

Ideally, you’ve been regularly depositing money into a holiday savings account throughout the year. If you have, congratulations, you’re in rare company. Most people get through the holidays on credit.

Typically, credit card spending gets a bad rap. However, when done right, using credit cards to make your holiday purchases might just save you money. It can even help hold you accountable to your goals.

Here are two of the major benefits of using credit for your holiday spending:

· Rewards. If you’re in the market for a new card, the holiday season is a good time to be looking. Creditors often offer a generous signing bonus for spending up to a certain amount of money within your first billing month. Others offer points for items purchased on credit. So you can reap major rewards—cash, travel or coupons— for purchasing the gifts you already plan to purchase.

· Discounts. Most retailers offer savings and special promotions on in-store purchases made with their credit card. If you’re purchasing a big-ticket item or the smaller items on your list add up, consider opening a store credit card. You can save as much as 20 percent on your total purchase.

Of course, there are caveats. Too many open credit cards with outstanding balances will negatively affect your credit rating. The key words being: “outstanding balances,” because one of the biggest factors in scoring a strong credit rating is to maintain a low ratio of debt to the amount of money you can borrow. So the idea of too many credit cards being bad for your credit is an oversimplification of your credit rating. Other factors, such as average age of your credit cards, are considered as well.

This second point is directly tied to the first. You must pay off your balances. If not, any of the savings and rewards gained will quickly be erased by the interest you pay on your purchases.

If you already have credit cards, look through your wallet and utilize the credit cards that have a great rewards program attached to them. Many cards have up to 5 percent cash back on purchases. If you aren’t sure if your credit card has rewards you can call the financial institution or you can create an account online and check there. Some credit cards offer rewards that need to be activated before you can begin to accumulate them. So make sure they are activated. Put as much as you can on the same credit card to maximize your rewards faster.

Talk to your bank

Most banks are also in the credit card business. Ask if there are any rewards programs involved with debit or credit cards linked to your account. Often banks will offer cash back or gift cards when a certain amount of rewards are accumulated. For example, KeyBank’s relationship rewards programs lets customers earn points through everyday banking activities such as bill pay, credit card and debit card purchases, as well as provides discounts and coupons for shopping with their favorite retailers.

An added benefit of using your bank credit card or debit card is that it is connected to your bank account, which means you can set up mobile banking alerts to better manage and track your spending. Also, many banks have specialized services that allow you to set goals and monitor your progress in achieving them. For example, with KeyBank’s myControl Banking, customers can specifically set a target, like holiday spending, and easily stay-up-to-date with how their holiday spend measures against their planned budget.

Maintain your discipline

Just because you worked so hard racking up the rewards and cash back during this holiday season, don’t use it as an excuse to spend more than you planned. Also, commit to having a better plan for next year. By knowing how much you spent and on what, you can set a more accurate budget. Then you can start setting aside a little bit each month, so that next holiday season you can spend on your credit cards and have the confidence to know you can and will pay it all on time, while reaping major rewards along the way.

Want to know more about your credit options? Stop by your KeyBank branch today!

Thomas Holstead manages the Eastchester Branch. He can be reached at (914) 771-4782 or thomas_r_holstead@keybank.com.