The holidays may come with a hangover for many revelers, but a financial hangover is also a common problem going into the New Year. Many parents, spouses and partners overspend over the holidays and begin the New Year saddled with credit card debt and finances that are in a shambles. This article provides ways to avoid at least one type of holiday headache.
December tends to be an expensive month without the extra expense of Christmas gifts. In northern climates, this is a time when housing expenses – particularly the heating and electricity bills – increase. The cold weather and shortened days increase transportation costs as walking and biking lose their practicality.
In the midst of this financial pinch comes the most expensive holiday of the year. In 2017, the average American expected to spend roughly $906 on gifts, according to Statista. The financial crisis brought this number down to approximately $616 in 2008. As you plan to shower your loved ones with gifts they want, remember, even a $100 purchase can become a huge burden to carry into the New Year.
Pick Your Poison
When you are in the thick of holiday shopping, a game system under your arm, a teddy bear clenched in your teeth and credit card in hand, it is worth taking a moment to consider with the type of debt you could be taking on.
A store card, for all its apparent benefits in discounts, is usually a poor choice to hold debt because these are issued with interest rates that reflect the qualifying requirements. These are high-interest cards, which are fine as long as you pay the complete balance before the billing period expires. Many people do not, and purchases become even more expensive with the additional interest expense.
A revolving line of credit is one option to borrow if you do not have cash on hand. This option requires a strong credit rating, but it offers flexible capital at low interest rates. If you cannot obtain a revolving line of credit, you can roll store card balances onto lower interest credit cards. If you plan to consolidate your debts into a fixed loan, wait until you have finished shopping.
The holidays are an annual event, so there is no excuse for being unprepared or for not putting aside money to spend. Saving ahead of time is a better option than racking up debt with interest.
If you shop for the holidays on credit, the real cost of what you buy may exceed the actual worth of the goods purchased. A savings program requires discipline and forethought, but there are holiday club accounts designed for this purpose. These are automatic withdrawal savings accounts that pay out the balance plus accrued interest when the holidays roll around. It may be too late this year, but there is no excuse to be caught by surprise next year – start planning now.
Thinking ahead also means making a list, checking it twice and going after the lowest price rather than waiting until you are in the store to do research and find the best deal. Spending time in stores without a clear agenda is a good way to spend unnecessary amounts on yourself. One way to keep your spending under control is to write a gift plan and take it with you on your shopping trips. If something is not on your list, don't buy it.
If all of these strategies fail, you overextend your credit sources and are unable to consolidate at a low rate, you can clear your debts slowly and systematically. Using the seasonally appropriate snowball method, an individual puts the most money they can toward the debt with the highest interest rate while paying the minimum on other debts. Once the highest interest debt is clear, you focus on the next highest, and so on. This will lessen your overall interest payments and shorten the length of time it takes you to repay your total. It will also have the extra benefit of encouraging you to prepare better next year.
Gifts from the Heart
Gift giving does not have to be expensive. It can be more meaningful and affordable to use creativity and effort rather than cash. Few people marvel over the craftsmanship of a cell phone or develop a sentimental attachment to a fondue set. If you are creative and thoughtful, you may be able to come up with something that will be used more regularly and remembered more fondly than a factory gift.
Alternative gifts also give you the opportunity to defer costs. If you opt for a vacation package in the summer, for example, you will be able to put off the expense until summer or whenever you want to book the trip. In these cases, whether a trip to Mexico or a renovated bathroom, the presentation may be made during the holidays, but the cost will come later. This will give you time to save properly and incur the holiday expense when your regular expenses are lower than they are in winter.
The Bottom Line
Sensible spending and fiduciary management do not have to dampen your holiday spirit. With some forethought and proper debt management, you can have the joy of giving from your heart without the pain of overextending your pocketbook.