Many people overspend during the holiday season, and you may find yourself doing the same. It is especially more appealing when you can swipe away your credit card at every offer, discount, and opportunity. 

Unfortunately, spending more than necessary on your credit card leads to high credit card balances which increases your credit utilization ratio and negatively affects your credit record. 

On the other hand, credit cards, if used well, can really enhance your shopping experience. Below is what you need to know about keeping your credit card balance low during the holiday.

Understanding the Credit Utilization Ratio

The measure of how much of your available credit you are using is referred to as the credit utilization ratio. It’s a comparison of the amount spent on your credit cards or credit account to the set limit on the same. 

You calculate it by dividing your credit card balance by the card’s credit limit so if you have one credit card with a $1,500 spending limit and carry a $300 balance, your utilization rate will be 20%.

The same ratio will apply if the credit balance in one card is $300 out of a total of $1500 spending limit on several cards. 

To get the overall utilization ratio when you operate with several credit cards, therefore, you need to consider your total credit limits and total credit balances across all the accounts.

Three Ways to Keep your Credit Card Balance Low

A credit utilization ratio of below 30% of your total available credit is recommended. This sends the message that you can manage your finances, something that catches the attention of potential lenders. High credit card utilization ratios flag you as a credit risk. 

Here are some pointers on ensuring your utilization ratio remains low: 

Listing the Items to Spend on and Setting a Limit

According to an article published on CNBC, Americans owed $70 in credit card debt by the end of the holiday season in 2021 with a whopping 82% of them not expected to pay within a month.

What if you could make a list of things to purchase during the holiday season and set spending limits so that you don’t spend more than what appears on the list? This would help you avoid carrying credit card balances to the following year and help reduce your credit utilization. 

You may also consider going for consumer credit cards or small business cards that allow you to set spending limits for authorized users like spouses, children, or employees. 

Track your Balances

Setting up alerts with your credit card issuer is a great way of keeping track of your credit card activity. You can be notified every time your credit card pays for anything and since the alerts are customizable, you can set them to only alert you when you make a certain amount of purchase to avoid numerous alerts for many small purchases.

You can also set alerts for when you reach a given credit card balance based on the 30% rule of thumb.

Further, credit card alerts not only help you keep track of your credit card balance but can also help to remind you of upcoming credit card payments and send notifications of potential fraud. 

Pay off your Purchases on the Same Day and Do Multiple Payments in the Same Month

No rule states that you need to wait until the end of the month to make your credit card payments. If for example, you are swiping your credit card for the convenience of online shopping, nothing stops you from paying for your purchases the same day.

The same applies to making multiple payments in the same month. These moves will keep your credit utilization low while the latter also helps you to avoid paying interest on your purchase.

To Sum Up

A good credit history opens you up to more financial perks such as securing low credit card interest rates, being eligible for great loan terms, and being approved for a mortgage. There’s also some peace of mind in knowing that you are not racking up credit card debt. 

Keeping a low credit utilization ratio is key. However much the temptation to spend during the holidays may beckon, maintaining a low balance on your credit cards is one of the best moves toward a better financially healthy future.