6 Ways to Prevent Holiday Credit Card Debt
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Unplanned holiday expenses can accumulate quickly, leaving a debt burden that persists even after the decorations are put away. A study by Magnify Money in 2018 revealed that the average American took on $1,230 in credit card debt during the holiday season. Alarmingly, 64% of those surveyed confessed that their holiday debt caught them off guard, with nearly half (49%) anticipating that it would take five months or more to settle their post-holiday bills.
If you’re already grappling with debt, adding more during the holiday season could prove overwhelming. The seasonal pressures can create a sense of impending financial doom. However, taking proactive steps now can help you dodge a post-holiday debt crisis.
1. Establish a holiday spending limit
To effectively allocate your holiday budget, begin by determining how much you intend to spend on gifts.
If you opened a holiday savings account earlier in the year, checking your balance should be straightforward. If not, carefully examine your checking and savings balances to identify any “extra” funds that could be available this year.
During this assessment, account for all your ongoing monthly bills and necessary expenses. Additionally, consider any work-related costs you’ll need to manage, such as travel for holiday events or parties.
Next, calculate how many pay periods remain before the holidays and plan out how those funds will be distributed.
2. Explore opportunities to generate additional income
If your holiday budget falls short, think creatively about how you can boost your income. This might involve taking on extra hours at your job or finding part-time work temporarily as the holiday season approaches.
For easy ways to earn supplemental income, consider options that require minimal time or financial investment. Opportunities like dog walking, babysitting, or selling unused items can be great options. (See also: How to Transform Your Skills into a Side Income)
You can also redeem any accumulated rewards points on credit cards for gift cards or products, potentially easing your financial load.
3. Compile a gift recipient list
Once you’ve established your budget, create a list of everyone you plan to buy gifts for. While immediate family and children are likely on your list, remember to include colleagues and friends who partake in gift exchanges.
Document this list, either on paper or digitally, and pair it with your budget to ensure you remain on track. (See also: Manage Your Finances Using These 10 Free Spreadsheet Templates)
4. Identify areas to cut back
Next, critically evaluate your gift list to see if there are recipients that can be removed. You might find that certain family members or friends don’t require gifts due to infrequent contact, or perhaps older children who’ve outgrown the tradition.
If you’re participating in gift exchanges that no longer bring joy, consider expressing your desire to opt out to the organizer. If they’re unsupportive, that’s not your concern.
If you plan to scale back on gifts for family members, it’s courteous to communicate this to them beforehand, especially if they routinely gift your family. Many will understand your desire to manage spending and avoid debt this year.
Decide who remains on your list and reassess your budget for each remaining recipient. For instance, you could allocate $150 for each of your two children while designating $20 for others on your list. Document your budget to help ensure you adhere to it.
5. Take advantage of sales to maximize your budget
Understanding your gifting budget is crucial in preventing overspending during the holidays. Knowing you have a cap of $20 per family member empowers you to shop effectively within that limit rather than improvising.
While major sales events like Black Friday and Cyber Monday offer significant discounts on a wide range of products, maintain vigilance for deals on items on your shopping list. The internet is a valuable tool for comparing prices and hunting for bargains. Consider using apps like Honey, which automatically finds and applies discount codes during online shopping.
6. Develop a strategy to avert debt while shopping
Whether you choose to pay with debit cards for online purchases or cash while shopping in stores, that’s a sensible approach. Nevertheless, keep in mind that credit cards often provide greater protection for online transactions via the Fair Credit Reporting Act (FCBA).
If you opt for credit to earn rewards or access buyer protection benefits, ensure you only charge items that fit within your pre-established holiday budget. Aim to settle your credit card bill fully upon receipt since it’s easy to let bills pile up during this busy period.
