The holidays are a time of indulgence. You eat a few more Christmas cookies than you probably should, have one more glass of wine, and give yourself a few days off to do nothing but enjoy the company of your loved ones. Letting go of your worries and embracing life is key to making the most of the holidays. When it comes to your finances, however, you have to draw the line. The temptation to overspend will be great. You’ll want to spring for the perfect gifts to make sure your loved ones get exactly what they deserve. However, if you want to stay out of debt this holiday season, you need to stay smart, stay disciplined, and refuse to indulge.
Statistically, many people fail to rein in their holiday spending. Surveys show that the average holiday debt load for people who added debt during the 2016 holiday season was over $1,000. Even consumers who don’t finance their holiday shopping will end up spending about $967.13 over the course of the holiday season. While 54 percent of Americans expect to spend about the same amount of money as they did last year, nearly half of younger shoppers aged 18-24 plan to spend more.
All of this late-2017 spending can add up to a real financial headache in the early months of 2018. After all, spending less and saving more is one of the most popular New Year’s resolutions, but it’s almost impossible to pull off if you’re dealing with over $1,000 of new debt from the holidays. Don’t start next year off on the wrong foot; follow these five tips and stay out of debt this holiday season.
1. Make a plan and make it early
Making a plan before you start shopping for gifts is absolutely the most important thing you can do to keep yourself out of holiday debt. Planning gives you structure and limits while helping you keep your eye on the big picture. Without a plan, you’re more likely to make bad decisions, purchase things spontaneously, and exhaust your finances prematurely, forcing you to spend on credit to get your holiday shopping done.
First things first: figure out whom you’ll actually need to buy gifts for. This process can be much more difficult than it sounds. Obviously, you’ll want to get gifts for your immediate family, but how far do you stretch your budget after that? Do you get a gift for your in-laws? Or, do you just sign your name on your partner’s card? Do you buy any of your co-workers gifts? Or, do you just join the office Secret Santa? How do you decide which friends make the cut for gift giving? How do you predict who will give you a gift so you’ll be prepared to reciprocate?
Making a list forces you to ask all of these tough questions and more, but it’s worth it. By figuring out whom you’ll be shopping for at the beginning of the shopping season, you’ll know exactly how far you’ll need to stretch your finances.
That brings us to our next step: making a budget. Really, this is as simple as setting a total dollar limit on your holiday purchases. The hope is that you already have a budget for your normal monthly expenses and you know how much you can afford to transfer over from your savings if necessary. With all that information in mind, decide on an amount you’re willing to spend on gifts this year.
Next, put both of these resources together. How much do you want to spend per person on your list? Deciding how much to spend is easier if you have a basic idea in mind of what you might get for each person, but that’s not necessary. As long as you can assign a rough dollar amount per person, you’ll have a good idea as to what you can spend to stay within budget but still be satisfied with your gifts.
You should also budget a small amount to buy unexpected gifts as they come up. Say one of your friends unexpectedly gives you a small gift and you have nothing to give in return. You need to be able to go out, grab something, wrap it up, and pretend you aren’t buying it just to reciprocate. If you’re smart, you’ll buy a stockpile of generic gifts that you can keep on hand for situations such as these. Gift cards are great for this; almost anyone can use a gift card for something. If you don’t end up having to give it, you can just use it for yourself or resell it online.
The smartest shoppers of all will do all of this very early on in the season, even months in advance. Then, they’ll figure out how much they have to save to afford their gifts, and they’ll start saving as soon as they can. By the time Black Friday rolls around, they have a holiday fund saved up and they can spend without worry, knowing that their normal month-to-month finances are unaffected.
Even if you aren’t a great planner, a little bit of forethought will save you boatloads down the road. Even if all you do is set a budget, you’ll be setting yourself up for financial success.
2. Shop over time, but don’t go overboard
Great gift givers don’t procrastinate. They keep their eyes peeled year round for discounts and deals on the perfect gifts for the people in their lives. When the time is right, they strike. By the time the holidays roll around, they have most of their gift shopping already completed without breaking a sweat. They also avoid depleting their finances with one big lump holiday purchase and thus avoid running up their credit cards.
If you’re reading this, then the above paragraph probably doesn’t apply to you, and it’s probably too late to take a gradual approach to buying gifts. However, the basic spirit still applies: don’t feel like you have to purchase everything all in one go.
You’ll be tempted to knock out your holiday shopping in one fell swoop with an enormous Amazon order, but spreading your gifts out over a couple of paychecks can drastically reduce the financial stress of the holiday season. As long as everything is delivered on time and you don’t needlessly forgo deals such as free shipping and retailer rewards, cooling your heels and spacing out your shopping can pay off.
Really making this strategy work, however, requires more discipline than you might expect. That’s because it can be difficult to stop shopping once you’ve started. Say you finish your shopping two weeks before Christmas, and you depleted your gifting budget. You have your gifts wrapped and hidden away. All of a sudden, retailers start piling on the pressure, slashing prices and trying to tempt you to spend even more. You see the perfect gift for your partner listed as half off for a limited time only. Will you be able to resist splurging on it?
Without serious financial discipline, then, buying early can backfire. However, if you can stop yourself from spending indulgently, spacing your purchases out over a period is a wise move.
3. Spend in cash whenever you can
The best way to avoid spending money that you don’t have is to ditch your cards altogether and stick to cold, hard cash. Your will to save will be much stronger when you’re taking $20 bills out of the ATM than when you’re standing at the register of your favorite store, wondering whether you should ditch your budget and spend an extra $50 on credit for something you don’t really need.
Spending in cash is more of a psychological trick than a financial one. Your cards have the same exact function as cash: trading the money in your bank account for stuff. The benefit of cash is that it feels real and is finite; when your $200 is gone, your shopping trip is over. Swiping a credit card, on the other hand, is too easy, making it simpler to rationalize overspending. Once you spend that first $200, it’s even easier to spend the next $100 if all it means is running up your credit line.
The “envelope system” is a great way to use cash to keep yourself accountable for your spending. The premise is simple: you withdraw the amount of money you intend to spend on gifts from the bank and put it in an envelope marked “gifts.” Absolutely no money should come out of the envelope for anything aside from gifts, so set it aside until you’re ready to go shopping. Use the enclosed money to buy your gifts and cut yourself off when it runs out.
You can use the envelope system for any expense that you have a hard time with. It may sound simple, but it can be extraordinarily effective simply because it makes you feel accountable to your budget goals. If you spend more or resort to spending on your credit card, then you’re cheating on your envelope, and who wants that guilt?
Of course, the envelope system only works when you’re spending cash. Shopping for the holidays online can be a great way to save money, so you shouldn’t totally cut it out of your plan just to stick to cash. If you know that you’ll be buying gifts in a store, however, then shoving some money in an envelope could be the key to keeping your budget under control.
4. If you need to use a card, use the right one
A disclaimer: really, truly do not spend on credit unless you actually need to. After all, credit cards only make sense for card issuers if they’re confident that you’ll end up paying them back more than the original purchase in the end. That sounds obvious, but it bears repeating: if you spend on credit, you’ll almost certainly end up paying more than you have to.
That said, sometimes we need to lean on our credit cards to make the holidays work. Therefore, if you’re going to be spending on credit, make sure you do it wisely and choose the right card.
Why spend on just one credit card? On one hand, you’ll rack up rewards faster if you consolidate your spending. On the other hand, spending on one card makes it less likely that you’ll forget to make a payment and start racking up late fees. So, choose the card with the best rewards and the lowest interest rate and make that your holiday credit card.
If you already have a significant level of credit card debt, then the holidays might be the right time to think about applying for a balance transfer credit card. These cards come with promotional interest rates, and the best cards don’t accumulate interest at all for a set period. Transferring your balance to one of these cards can start you on a journey toward paying down your debt and reduce the financial risk of oversized holiday spending at the same time.
Of course, you’d be better not spending on credit at all, but sometimes, it’s unavoidable.
5. Do whatever you can to save
The best way to stay out of debt is also the simplest: spend less. As we’ve already said, the holidays put us into an indulgent mindset, which makes us less price-conscious than we usually are. Staying disciplined and doing whatever you can to save will pay off big time, but it might make your holiday shopping spree a little less carefree.
As a rule of thumb, you should try to shop online first. Online retailers often have better prices and run constant promotions designed to get you to spend. Most offer free shipping once you spend a certain amount, meaning you won’t pay extra for shopping online.
For items that you buy in the store, try to find deals whenever you can. Often, this can be as easy as finding the product you’re interested in online or in another retailer’s ad and asking a store to match the price. Keep an eye out for advertised sales as well, but be wary; retailers can be tricky and sometimes what is marked as a sale might not save you that much money in the end. Take a look at some tips about how to stay out of debt while holiday gift shopping.
In general, keep your wits about you. Holiday spirit makes us feel generous, and every retailer in the world is going to be throwing every trick in the book at you to try to get you to spend. As long as you can stick to your plan, stick to your budget, and remind yourself to stay financially responsible, however, you should be able to celebrate a debt-free holiday season.