On Tuesday I wrote about how to avoid going into debt while still giving presents to your loved ones.
Today I’m going to talk about a scenario in which it’s okay to use a (singular) credit card for Christmas (or any other purchase).
My husband and I are living below our means and working to paying off our debts. In the last year and a half, we’ve just about annihilated our credit card debt (only $1,200 more to go) and are soon going to start working on our car loans. We have an emergency fund set up, and are even putting a little aside each month toward an eventual house down payment. It’s not as much as it will be when we’re out of debt, but it’s still something.
There are some who would argue that we shouldn’t be doing Christmas presents this year, because we would better off spending that money on paying off our debts faster. But Christmas is a very special time for both my husband and I; our families have always celebrated it and we want to continue the tradition, especially since most of his family is much farther away than usual this year.
Should we be doing Christmas presents this year? Maybe, maybe not. Are we doing Christmas presents this year? You bet we are. There have been too many years when we haven’t been able to, and this year, because we can even though we probably shouldn’t, we are so so going to.
Our Situation: No Money ’til the Second Half of December
I wrote the other day about our money being out of balance, where our bills in the first half of the month far outweigh our bills in the second part of the month. Knowing this simple fact has really helped me organize our spending to keep us in the black, for which I am grateful.
One thing it doesn’t do, is change the fact that we have no extra money until the 18th of December when we get paid again, and that’s far to late in the month to be buying presents, especially since half of them need to get to family across the country.
The Solution: Credit
You won’t see those words written on this blog very often. I very rarely think credit is the solution for anything, because it’s too easy to get carried away, and get out of your depth in debt. But when used judiciously, credit can be very handy.
I know, barring something really awful like a lay off (unlikely for either my husband or myself at this time), that we will have extra money in the second half of the month. And, because I have setup a budget, I even know pretty close to how much. I also know that my husband is going to get a bonus through work, and because it’s based on metrics that he can affect, we have a ballpark figure on what that’s going to be, too.
Put those two numbers together, and you get $500 that we can spend on Christmas presents this year. ($500 is actually a conservative number. In reality, it’s probably closer to $600 or $650, but I’d rather under-estimate than over-estimate and be wrong.) If I had a magic wand, I would make all that money appear in my pocket now, but since I don’t have a magic wand, I’ll use the next best thing… my credit card.
How it’s going to work
We have one credit card that we’ve completely paid off, but because it’s in my husband’s name and he’s had it longer than any other account, we’re keeping it open by charging our Xbox Live subscription to it. It has a fairly high interest rate (15.8%) which is added incentive for me to pay it off at the end of the month. (The rest of our debt is on a 0% interest card until July of 2011, so we can put paying that off on hold for one month without any negative consequences.)
So, for this first part of December, I’ve pulled the first card out of storage, and I’ve been using it buy gifts and take advantages of Christmas deals that we would have missed if we waited until the second part of the month when we had the money in hand. And, I’m using it to ship all of Ben’s family’s gifts to them so they arrive on or before Christmas without paying exorbitant shipping fees.
Why it’s going to work
The key to using credit, is to only use it when you know you’re going to be able to pay it off before the end of the month. As soon as we get paid on the 18th, I’m going to take the estimated $500 and pay off all the charges on the credit card. I’ve been watching the balance and making sure that we stay within that amount. Thus far we’re doing just fine.
Whatever’s left over of the extra money we have, we’re going to spend on Christmas presents for each other. It may not be much, but it’ll be something, and “’tis the season to give” after all.
If you decide to use Credit for a big purchase…
Don’t spend money you don’t know you’ll have before the end of the month.
Make sure you stay within the amount you’ve budgeted for the purchase, don’t go overboard just because you’ve got “more money” on the card. You don’t have any money on the card, you have a set amount that you can borrow from someone else, usually at an exorbitant fee.
If you have trouble with spending, do not use a credit card, even if you know you’re going to have money to pay it off. Don’t tempt yourself.
If you have trouble with credit card debt, or have had trouble in the past, don’t use this as an excuse to open up that can of worms. You know your weaknesses; don’t test them.
Happy Holidays, folks. And if you can’t give anything else for Christmas, give a smile to someone you love.