Many credit card companies offer numerous benefits for signing up for a new credit card.  They often come with enticing card member benefits and rewards such as cash back, hotel and airline travel rewards, etc. However, you need to know how much the card can potentially cost you by checking out all the fees associated with the card before applying.

1. Annual fee

Many reward cards charge an annual fee just for having the cards. Fees can range from a nominal $50 to as high as $500 or more. Typically, higher the fee, the more generous the benefits. Do the calculations on how much you expect to spend with the card and the reward compensation you will receive for doing so to calculate and ensure a positive return on the annual fee.

Consider how often you’ll use the card to earn rewards and whether the membership perks are worthwhile before committing to a card that charges an annual fee.

2. Review your monthly budget

You can use anything from a piece of paper, excel spreadsheet, or an online application to calculate your monthly income and expenses. Consider doing this for each month of the year so you include any annual expenses. Once completed you can try using a budgeting strategy called the “60% Solution.” This is where you apply first 60% of your net monthly income (money you have available to spend after taxes) to priority expenses, which includes, housing costs (rent/mortgage, utilities, repairs, etc.), credit card bills, internet, cable, memberships, anything you must pay each month.

The next 30% goes to savings: 20% to long-term savings, such as a 401K/IRA, stocks, bonds, CD’s (Certificate of Deposit), etc., and the other 10% to short-term savings, this would be money you can easily have access to for emergencies or for a big purchase you know you are going to have to make.

The remaining 10% can be applied to discretionary spending for whatever you want to spend it on, such as gifts, recreation, and entertainment.

3. Rethink your spending, especially during the holidays

After completing your budget and analyzing your financial situation you will be in a position to know what you can afford to spend and where you need to make spending cuts. Consider your spending in advance of the holidays. If your financial picture is challenging, then it is best to have a frank discussion with your family and friends about what you can afford to spend for holiday gifts.

One option that can save on holiday gift spending is to do a secret Santa, where you buy one gift, and everyone picks a turn out of a hat in selecting a gift. This way everyone receives a gift but instead of purchasing numerous gifts, you are only purchasing one, while everyone receives a gift.

The holidays are a good time to reflect on your overall spending habits and analyze your expenses to see if there are items you can reduce or eliminate so you can put that money towards debt, savings or another financial goal.

4. Notice your feelings

It’s easy to feel down during these chaotic times, however before you consider making an impulse purchase to feel better, consider your emotions before moving forward. Ask yourself if you need the item or are you buying it to make yourself feel a certain way. Consider if the purchase fits into your 10% discretionary spending budget.

The supply-chain shortages can induce fear and the feeling that you could be missing out if you don’t purchase right away. This can lead to buying items “just in case” you may need them.