I’m of the opinion FOMO (“Fear of Missing Out”) never strikes harder than during the summer months. Perhaps it’s the laid-back vibe in the air, the fact that things slow down at work, or an indescribable itch leftover from eighteen years of formal summer vacations. Whatever the reason, it’s easy to overindulge when the weather heats up.
But that doesn’t mean overspending in the summer months won’t come back to haunt you come fall. Whether it’s an expensive European sojourn, two bachelorette parties in a row, or that irresistible last-minute deal on an all-inclusive getaway, I’m here to make a handful of strong arguments for why it’s important to exercise restraint when it comes to summer spending.
Impacts to Your Credit Score
If you pay for summer frolic on a credit card (instead of in cash) and don’t pay off the balance each month, it can decrease your credit score. Here’s how:
When the amount of debt you carry increases, it impacts your debt-to-income ratio, which is what some lenders look at when you apply for a loan. Your debt-to-income or DTI, shouldn’t exceed 36% of your take-home income each month. While DTI doesn’t directly impact your credit score, it could be hazardous in the event you’d like to make a large purchase in the fall. Lenders will be looking at your credit and you want it to be in the best shape possible in order to qualify for the lowest interest rate. Splurging on summer vacation now could cost even more if you factor in the increased interest amount you’ll pay due to credit card debt’s effect on your score.
A “high” DTI also means you’ll qualify for a smaller amount in the event you do apply for a loan. Was that week in Provence worth the smaller house, car, or student loan you wanted? These are your financial decisions to make, but especially in the event of a larger purchase, you’ll need to be careful with your credit card spending in the months prior.
You can check calculate your debt-to-income ratio and credit score for free with Turbo so you can see where you truly stand financially. For each of your numbers, Turbo also gives you the “whys” behind them, key takeaways, and comparisons to people like you.
Little Time to Recover Before the Holidays
Going into debt over the summer is one thing, but if you’re not saving up for the holidays either, it could spell financial trouble long after the seasons change. Charging summer travel, not paying it off, and then relying on credit cards for holiday spending can quickly evolve into a vicious cycle of living paycheck to paycheck.
An Abundance of Free Activities
When’s the last time you tried something different? Look at what your local community has to offer in terms of free or cheap options to learn. Some town recreation centers are the perfect starting point for finding fun community activities or renting gear to have your own “staycation.”
When its warm out, there’s free parks, lakes, and beaches to enjoy without having to break the bank. Grill out in your backyard instead of dining at a restaurant. Save the higher cost activities (dinner, drinks at bar, movies) for winter when it’s necessary to be indoors.
Plenty of Time to Prepare
I’ll leave you with one last lesson: summer isn’t a surprise. What I mean by this is that you’re able to plan ahead for all of your summer expenditures by saving throughout the year. If you’ve already spent a hefty amount this summer, don’t worry. There’s still time to hustle up extra cash this fall to pay it off. And the good news is that if you want similar things for next summer, you can learn from your spending this year. Use a budgeting app like Mint to take a look at your summer spending. Then divide that number by 9 to get the amount you need to put away each month!
You can’t plan for everything, but for the things you can plan, do so. Unless you can bank on paying your balance in full during each payment cycle, see if you can save for some of those big-ticket purchases you’ll want to make for next summer. This will help you avoid dinging your credit in the first place.
Summer always feels good, but spending summer debt free? Even better. What are your best tips for having an active summer while keeping your finances afloat?