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Accruing holiday debt can often happen without intention, yet its repercussions can persist long after the decorations are stowed away. In a study conducted by Magnify Money in 2018, it was found that the average consumer added $1,230 in credit card debt during the holiday season. Alarmingly, 64% of participants reported their holiday debt was unexpected, and about half (49%) anticipated it would take at least five months to settle their holiday expenses.
If you’re already managing debt, facing additional liabilities over the holidays is the last thing you need. Unfortunately, the holiday season comes with immense pressure that can make it feel impossible to stay on track. Here are some proactive steps you can undertake now to steer clear of a holiday debt aftermath.
1. Establish a holiday shopping budget
Initially, it’s crucial to determine the total amount you intend to allocate for holiday gifts before planning how to distribute those funds.
If you opened a holiday savings account earlier in the year, checking your available balance should be straightforward. If not, take a moment to evaluate your checking and savings accounts to identify any “extra” funds designated for holiday spending.
As you examine your finances, remember to account for your regular monthly expenses alongside any upcoming work-related expenses, such as travel for holiday parties.
Additionally, consider how many paydays remain until the holidays, as well as how to effectively distribute those earnings.
2. Explore ways to earn extra income
If your budget isn’t as ample as you had hoped for the holidays, getting a bit inventive with side gigs may be necessary. This might involve picking up extra hours at your current job or exploring short-term work opportunities as the holidays approach.
For easy ways to earn additional money prior to the holidays, consider side hustles that require minimal investment in time or money. Options could include dog walking, babysitting for neighbors, or selling unused belongings. (See also: How to Turn Your Expertise Into a Side Hustle)
Furthermore, if you have reward points from credit cards, checking if they can be redeemed for gift cards or merchandise might prove beneficial.
3. Compile a holiday shopping list
Once you have a better grip on your budget, the next essential step is to list who you plan to shop for. Don’t forget to include gifts for colleagues and your employer alongside family members and children.
Record this list physically or enter it into a spreadsheet, along with your designated budget for each recipient. (See also: Take Control of Your Money With These 10 Free Spreadsheet Templates)
4. Identify necessary cuts
Next, take a hard look at your shopping list to identify potential cuts. There may be friends or family members who don’t require gifts anymore, especially those you seldom see, or older children who no longer expect gifts.
If you participate in gift exchanges but feel it’s time to opt-out, those typically can be dropped easily. It’s best to communicate with the organizer about your tighter budget. If they don’t respond well, that’s their issue.
Should you decide to drop certain family members from your list, informing them in advance is recommended, especially if they usually get you gifts in return. Most people will understand your desire to cut back on spending and prevent falling into debt.
Ultimately, discern whom you wish to gift and remove others from your list, then allocate your budget accordingly for the remaining names. Perhaps this means designating $150 for each of your two children and $20 for other individuals. Whatever strategy you choose, document it to remain committed to your plan.
5. Take advantage of sales to maximize your spending
Understanding your spending cap for family and friends is vital to staying within your budget throughout the holidays. When you have a clear figure, such as $20 per person, you’re more equipped to search for fitting gifts within that monetary threshold, minimizing the risk of overspending.
While Black Friday and Cyber Monday typically feature great discounts on various items from electronics to apparel, don’t overlook ongoing promotions leading up to the holidays. Utilize online tools to compare prices and seek deals across retailers. Consider installing the Honey app, which identifies and applies the best coupon codes automatically when you shop online.
6. Plan to prevent debt when purchasing gifts
Using debit cards for online shopping and cash for in-store purchases is completely acceptable this year. Nonetheless, it’s worth noting that credit cards generally offer better fraud protection for online transactions under the Fair Credit Reporting Act (FCBA).
If you opt for credit to earn cash back or access benefits like extended warranties, be sure to limit your purchases to those designated in your holiday budget. Committing to pay off your credit card balance in full upon receipt is crucial; past holiday shoppers often admit that it’s all too easy to allow those last bills to accumulate.
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