The upcoming holiday season can bring a mixture of emotions for many people. When money is tight, joyful gatherings and gift exchanges can cause anxiety and stress. Follow these smart strategies to stay out of debt over the holidays.
Holiday giving and how people pay
People love to give around the holidays. The spirit of goodwill and generosity during the holidays is truly special. In 2023, nearly 85% of Americans plan to purchase gifts for friends and loved ones during the holidays. Many also plan to gather and share special foods or drinks at parties or festive meals.
A recent NerdWallet survey found that Americans plan to spend an average of about $830 on holiday gifts this year. Three-quarters of the adults surveyed plan to charge most of their holiday expenses to credit cards.
Unfortunately, that hasn’t worked well for many people. More than half of Americans used credit cards for holiday shopping last year. Nearly one-third of those consumers still haven’t paid off the balances.
Staying debt-free matters
This holiday season, aim to stay debt-free.
“Debt and budgets are often things people don’t want to think about during the holidays,” said Lori Pollack, Executive Director of the Financial Counseling Association of America (FCAA)
Choosing to avoid holiday debt lets you decide how to use your money, instead of owing lots of interest to lenders.
The average credit card interest rate is nearing 24.5%. With rates this high, carried balances can quickly snowball, making credit card debt very hard to pay off.
“Building up debt during the holiday season can lead to a debt hangover that lasts far beyond the holidays,” said Pollack. “The better you can budget and control spending upfront, the more relaxing the holidays will be.”
By avoiding debt, you will increase your financial security, improve your credit score and set a positive example for your kids.
Understanding the holiday debt trap
“There are many reasons people overspend and go into debt during the holidays, including social pressure, sales, deals and advertising,” said Karen Carlson, Vice President of Education and Digital Marketing for InCharge Debt Solutions. “Most importantly, most people fail to put together a holiday spending plan that is in line with their available resources.”
Psychologically, holidays and vacations can provide motivated reasoning, which gives people excuses or “manipulated rationale” to justify splurging or overspending. When people prioritize immediate fun, treats and rewards over future costs, it often leads to financial pitfalls.
Unfortunately, holiday splurges and overspending on gifts or toys may haunt you with accruing credit card balances, rising debt and despair.
How can you avoid falling into debt during the holiday season? Follow these suggestions to keep debt at bay.
3 Practical tips for a debt-free holiday
1) Create a realistic budget
“A holiday budget is a great way to plan and manage holiday spending,” Carlson encouraged. Take a careful look at your current and upcoming expenses and what you spent on the holidays last year. With this information, decide what you can realistically afford this year. FCAA’s free Debt Freedom Tool can help you determine if you have money left after paying your bills.
Include the big budget items like gifts, food and decorations. Don’t forget extra expenses like wrapping paper, tape and shipping costs.
Save money on holidays by shopping early, using coupons, and choosing in-store pick-up to save on shipping.
If you are currently in debt, it may feel pointless to create a holiday budget, but it’s not. A good budget will prevent you from falling further into debt.
“Going into the holiday season with money saved and a budget is a great plan of attack,” said FCAA’s Pollack. “Holiday advertising can be very persuasive! Know what you need, what your budget allows and stick to a plan. Be wary of ‘Buy Now, Pay Later’ financing schemes. While they may sound great, you still need to make those payments.”
“Most people in debt have extremely limited savings to contribute to holiday spending,” Carlson added. “This means that to avoid maxing out your credit cards or taking out a personal loan to pay for holiday spending, a person in debt needs to find expense areas to cut to make room for holiday spending. Other strategies include increasing your income to cover expenses or figuring out how to celebrate the holidays without spending a lot of money. Think about how you can give more personal, but less costly gifts, for example.”
Set expectations with family and friends that the holiday may look a little different this year. Consider limiting gifts or drawing names with extended family instead of buying for everyone. Also, ask for general gift ideas instead of specific items that may cost a lot.
Ask a friend, partner or spouse who also has a holiday budget to be your holiday spending accountability partner. Check in each week and consider making it a challenge. See who can get the best deals for the least money spent each week, and find ways to encourage each other. You will save money and strengthen your relationship.
And don’t forget to stick to your budget!
2) Identify creative ways to celebrate without breaking the bank
There are many ways to celebrate the holidays on a budget. Whether making homemade gifts on your own, finding inspiration online or shopping at secondhand stores, the thought really counts.
Here are a few money-saving holiday gift ideas:
- Make and package up homemade treats.
- Create special decorations or creations instead of buying them.
- Shop at garage sales, estate sales, church sales and thrift stores to find bargains.
3) Prioritize experiences over material gifts
Some of the best gifts are memories. Many times, meaningful experiences don’t require a lot of money.
Plan a hike in the woods or cook delicious holiday meals with loved ones. Schedule a family drive to admire Christmas lights while sipping hot chocolate. These special moments are affordable and will create long-lasting memories.
A 20-year study at Cornell University found that material possessions bring only temporary happiness, while meaningful experiences shape our identities. And most people don’t compare experiences in the same way as material possessions. Plus, looking forward to an experience also brings a lot of excitement and enjoyment to the holiday season.
If you want to give a physical gift, creating a coupon booklet is a great idea. Coupons for a coffee date, doing the dishes, a free hug or a night in charge of the TV remote are a few low-cost ideas you can add to your booklet.
Still feeling worried about holiday debt?
Start by checking out FCAA‘s Debt Freedom Tool. It can help to assess your budget and see if you have any extra money after paying bills. It will also show if you have a shortfall and need to adjust your spending.
Then, reach out for help from a non-profit credit counseling agency. FCAA has many trustworthy member agencies that offer support, education, budget and credit counseling and more. FCAA member organizations help people who are in debt find ways to relieve the burden.
“Financial counseling is a great way for consumers to get unbiased information based upon their situation,” said Pollack.
“Every day, we ask our clients to share their hopes and dreams with us,” said Carlson, whose company is an FCAA member. “Our goal is to help our clients move beyond the struggle, beyond the paycheck-to-paycheck cycle, and achieve their dreams.”
According to Pollack: “Having an FCAA member as a first line of defense to overcome overwhelming debt could be the best holiday gift people give themselves and their families.
Enjoy the holidays this year by avoiding holiday debt
This holiday season, prioritize your financial health. Create a realistic holiday budget and stick with it. Identify inexpensive ways to celebrate and make new traditions. Finally, don’t put off asking for help with debt management.
FCAA and our members wish you a very happy and healthy holiday season!