Make The Nice List With Your Credit Card Use

It's that time of year again. He's making a list, and he's checking it twice. Of course, we're talking about the major credit bureaus! With the holiday spending season upon us, it's time to broach an uncomfortable subject: how to pay for all that joy and goodwill.

Let's look at some "naughty" and "nice" ways to use your credit cards in the spirit of the holidays. Be sure to stay on the correct list, or there may be coal in your stocking – and streaks on your credit report!

Naughty: Financing gift-giving with credit

If you need more money to finance your gift-giving, pulling out a credit card at every store and shopping until you drop can be tempting. That's precisely what most people do when spending with credit. A recent study of consumer behavior found that people spend nearly 20% more when shopping with a credit card. The dissociation between plastic and money can erode our ordinarily thrifty impulses, causing us to overspend.

There's also interest to contend with. That $812 could quickly turn into $1,000 or more, thanks to the power of compound interest. Even deferring payment for a month can cost you quite a bit! Less than a third of Americans pay off holiday credit card bills immediately. Most will have a balance that can make it hard to start the new year right. Consumer counseling agencies see a 25% increase in requests for help in January and February. Holiday spending can be the last straw for people barely getting by while making minimum payments.

Oh, and by the way, you might ruin the surprise on Christmas morning! If you put something special for someone special on a joint credit card, they might see it on the statement. Nothing ruins a perfect gift like a spoiled surprise.

Nice: Paying for holiday travel

If you're traveling for the holidays, it can make sense to use credit cards. Most major credit cards offer insurance for rental cars and different flight cancellation policies in case things change at the last minute. Using a credit card to make reservations at hotels, rental agencies, and other book-ahead services can also prevent the company from placing a hold on your account as a deposit.

Remember to make a clear budget for your travel plans and stick to it! Resist the impulse to take frivolous upgrades. Holiday travel is a chance to bond with family; fancier hotel sheets won't help! Keeping a clear budget will ensure you can pay that credit card bill next month and avoid costly financing charges.

Naughty: Guilt spending

The holidays are full of messages that connect spending to caring. These messages would have us believe that if you love someone, you'll get them jewelry or another extravagant item. Advertisers encourage consumers to make emotional decisions about spending rather than looking at what they can afford. Credit cards make this even easier by letting you postpone paying for the gift.

Instead of telling someone you care with borrowed money, show them you care with a thoughtful message and an inexpensive gift based on what they want. Refrain from buying into the myth that dollars are a meaningful quantification of your feelings. Give practical skills with the money you have.

Nice: Spending rewards on holiday purchases

If you use a rewards card throughout the year, now's a good time to cash those points in. Most companies offer discounts on two commodities everyone needs this time of year: travel and gift cards. You can use your reward money to help absorb some of the impact of gift-giving. Picking up gift cards this way can make last-minute gift-giving easier.

It might also be worth investigating the possibility of giving others travel points or miles directly. This can make a difference for relatives who travel frequently or make a trip home feasible for people who live far away. Look into using your rewards generously this year!