- Set up a holiday spending plan early in the year and start saving.
- Pay off existing holiday debt with a repayment plan.
- Spread out your expenses and shop during special offers.
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The holiday season can be an expensive time of year. And it’s easy to use debt to cover holiday spending.
Planning ahead for known expenses can help you reduce costs, avoid debt, and still have fun.
What is holiday debt?
Holiday debt is money that you borrow to cover holiday expenses.
These might be holiday loans, credit card debt, or even loans from friends and family. Holiday loans from banks are generally unsecured personal loans, where you don’t offer the lender any collateral (assets the lender can take if you don’t repay the loan).
Debt can become expensive and stressful depending on the terms and your financial situation. You can avoid debt by making a realistic holiday spending plan and following it.
The holidays are coming. Set your budget
Create a budget early in the year, so you have time to plan for a debt-free holiday season. Here are a few steps:
Plan your holiday activities
Talk to your family and decide what you want to do during the holidays.
Consider cheaper and more rewarding ways to spend your holiday season. Some people prefer to replace gifts with an enjoyable experience for the family.
Make your budget
Once you know how you want to spend your holidays, make a budget. It doesn’t have to be complex.
List your holiday expense categories: These can include gifts, donations, entertainment, personal items, household goods, and travel.
Note: prepare a gift list and set a spending limit for each person on the list.
Allocate a maximum spend for each expense category: If you can, check your previous year’s holiday spending to get an idea of how much you’ll need. If you’ve overspent in the previous years and accumulated debt, consider cutting back on expenses.
Use a budgeting app: An App can help you stay on top of your budget, spending, and savings goals.
Save money for the holidays
Starting early in the year, set aside money from each paycheck. That way, you can avoid last-minute financial stress later in the year.
Send your money to a separate savings account if that’s easier.
Sales happen all year round. Keep your eye out for things you’d like to give. Maybe your brother would like new barbecue tools. Those often go on sale in May. Maybe your child would like a new backpack. You’ll have plenty of choices in July and August. If a cozy new pair of gloves is what would make your boss happy, start looking for those on Black Friday.
Track your holiday spending against the budget
Record all your holiday expenses throughout the year. Check if you’re staying within your budget.
Adjust your budget
You might need to adjust the budgeted amounts for each category once you start spending. You’re in control of your spending plan. You can move things around.
If you’re regularly or significantly exceeding your budget, you might want to slow down on spending and figure out how to lower expenses. One way to lower expenses is to buy for fewer people. Lots of families enjoy drawing names, for instance, so that each person only has to buy one gift.
Strategies to manage your holiday debt if you still have some
Choose a plan that works for you based on the outstanding amount, the number of debts, and your financial situation.
Select a debt repayment method
You can choose one of these popular pay-off methods if you have more than one debt.
Debt snowball: start with the smallest outstanding balance and move up to the largest.
Debt avalanche: start with the highest interest cost and move down to the lowest.
Debt consolidation loan: get one loan to pay off multiple smaller debts.
Balance transfer: if you qualify, some credit cards offer a 0% annual percentage rate (APR) or a low-interest rate on balance transfers for a period of time.
Lower your expenses
Try to reduce non-essential expenses. Every bit counts.
You can still have fun. Just select cheaper ways, like having a movie night at home instead of going out.
Look for ways to make extra money
Consider getting a second job or an as-needed side hustle. It doesn’t have to be a permanent way of life. You can work extra until you pay off your holiday debt.
Sell unwanted items, like unused gifts or household goods you don’t need.
Use any cash windfalls like a tax refund to repay your debt, if possible.
Select a debt repayment tool to help you
There are many free and low-cost debt repayment apps to track your outstanding balances, select a repayment strategy, and manage your debt payments.
Practical tips to avoid holiday debt
Choose a holiday plan within your means
Sometimes, social norms and extravagant displays on social media can push people to spend beyond their means. Unfortunately, this can lead to years of debt repayments and money problems.
Choose a holiday spending plan that suits your income. Prioritizing your financial and mental peace can save you a lot of stress. And you’ll likely enjoy your future holidays even more.
Shop throughout the year
Spread your costs over many months to avoid last-minute holiday shopping, which can get expensive.
Here are some tips to help:
Sign up for special deals from your favorite stores to take advantage of good offers throughout the year.
Shop during sales events like Cyber Monday. If you can finish your holiday shopping during the week after Black Friday, you might have a more relaxed December.
Book any air tickets in advance. If you can’t find good deals, consider delaying your travel to a less-busy period.
Shop for next year’s decorations towards the end of this year’s holiday season. You might find discounts as large as 90%.
Stay within your budget
It’s easy to make impulsive purchases and rack up credit card debt, especially when shops offer large discounts. Check your spending plan and shopping list before you shop and try to stick to the list.
Find low-cost ways to enjoy the season
A smart spending plan doesn’t have to mean a boring holiday season. For example, your friends and family might like memorable gifts, like fun photographs from your past. Replace some nights out with game nights at home.
Practice credit-card discipline
Try your best to pay off your credit card bills by the payment due date. If you don’t, you’ll pay interest on your purchases, and that makes everything cost more. Sometimes using a debit card instead of a credit card makes it less likely that you’ll overspend.
Use 0% APR offers
If you need to make a large purchase but want to pay for it over time, try to qualify for a zero percent interest offer. Just make sure the amount you’re spending can be paid off during the zero percent promotional period, or interest will increase the cost of the purchase.
Planning ahead for holiday spending can help you enjoy your season and start your new year without money worries.
How much should I spend on Christmas?
Your Christmas budget depends on your available money and what’s important to your family. You can set aside a small percentage of your income for Christmas spending. Some experts say this should be around 1% of your annual before-tax income.
Select an amount you can comfortably spare without getting into debt. Then, make a spending plan for your holiday expenses and start saving for Christmas.
How do you get out of holiday debt?
There are different ways to get out of holiday debt, including:
Use a repayment plan like debt snowball (from lowest to highest balance) or debt avalanche (from highest to lowest interest cost).
Consolidate debt with a loan or use a credit card that offers balance transfers at 0% APR.
Cut costs and put the money toward your debt.
Get a second income until you pay off debt.
Are holiday loans a good idea?
Usually, no, borrowing for the holidays is not a good idea. One reason is that most loan terms are longer than one year. So you’ll already be looking to spend money on the holidays again before last year’s holiday loan is paid off.