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moneyonfire

A guide to holiday spending

Steven B. Smith

Christmas time overspending is so common these days that many consumers are still paying for last year’s gifts even as they plan for this year’s holiday purchases. When you think of it that way, it puts the problem of holiday spend in a troubling context. So what can be done to alleviate the financial pressures of both pre-and post-holiday expenses? Below are a few smart tips that will help you stay on top of your spending and quickly tackle any post-holiday debt:

  1. Create a spending plan now. If you haven’t done most of your Christmas shopping yet then now’s the time to put a plan in place. Figure out what you can reasonably afford to spend this year and determine how much to spend on each individual, not the other way around. Be sure to allow for things like decorations, parties and other unexpected expenses.
  2. Make a list and check it twice (or more). It’s odd how 75% off + limited quantities + hordes of other shoppers scrambling for a deal make that heated toilet seat look like such a great gift idea. To avoid buying on impulse, make a gift list for each person and stick to it. And for the occasional this-deal-is-too-good-to-pass-up, just make sure the store has a return policy you can live with.
  3. Keep tabs on spending as you go. The biggest mistake most people make is waiting to see the damage until after the holidays are over. Instead, track your expenses as you go to make sure you know when to pull in the reigns. Find a method that works for you, whether it’s setting aside cash to pay for everything, adding up receipts each night or using an online program like Mvelopes.
  4. Set a deadline for paying off all holiday expenses. If you charge $800 this holiday season (which is the average) and make only the minimum payment on that debt, it will take almost 11 years to pay off and end up costing more than twice the original price (assuming a minimum payment of 2.5% or $10 and an annual interest rate of 18%). Make sure you know the earliest you can reasonably pay off your holiday debt and push hard for that date.
  5. Spend less and still give great gifts. There are countless ways to be creative with gifts and avoid being seen as “cheap.” Try things like focusing only on gifts for the kids or starting a family holiday tradition that involves a fun activity. You can limit the amount each family member spends and challenge them to be creative, present a themed gift or give a unique family heirloom (i.e. framed pictures). Whatever you choose, there are always thoughtful alternatives to lavish gifts.
  6. Know what to do if you overspend. In the event that you do spend more than planned during the holidays, there are a few things you can do to alleviate the pain. First determine if you can consolidate all your holiday debt onto a lower rate card to avoid excessive interest fees. Try to pay more than just the minimum balance each month; paying even a little bit more can drastically reduce how long it takes to pay off a credit card. You can also return unused or unwanted gifts and put that money towards paying off debt. Finally, paying off holiday debt quickly will likely require some sacrifice. Cut back on eating out, vending machine snacks, post-holiday sales and other frivolous spending. It may not be ideal, but you’ll be glad when you finally unload your holiday debt and can start saving and planning ahead for next Christmas!

Photo courtesy of http://space-wolves-grey.blogspot.com/2010/05/gw-price-hike-1st-of-june-2010.html