The Gift of Financial Freedom—How to Avoid Holiday Debt

The holiday season can be an expensive time of year. When you start planning for the holidays early, it’s easier to pay for gifts and have fun with friends and family without going into holiday debt.

We’ll cover exactly what you can do to make your holiday budget and stay debt-free. If you’re currently dealing with holiday debt, you’ll also find advice on how to find the right debt relief and get rid of it for good. 

How to Set Up Your Holiday Budget

A holiday budget is the most important tool to avoid starting a new year with debt. Make a budget early in the year, so that you have time to save the money you need. Here are a few smart steps to your holiday budget.

1. Plan your holiday activities

Talk to your family and decide what you want to do during the holidays. Whether you’ll spend the holidays at home, visiting relatives, or going on vacation, it’s good to know in advance.

Once you know what you’re doing for the holidays, come up with your best estimate for how much your plans will cost. Include all the activities you can think of, such as:

• Flights

• Hotel

• Car rental

• Going out to eat

• Any special activities

2. Decide how much to spend on gifts

Along with activities, gifts are the other big holiday expense. There are a couple of ways to come up with a gift budget.

You could make a gift list, then set a spending limit for each person on the list. For example, maybe you decide to spend $300 on gifts for your child, $200 for your significant other, and so on.

Or, you could decide on a total gift budget, meaning the amount you’ll spend on everyone’s gifts combined. This method isn’t as much work, at least as you plan your budget. You just need to make the amount work for all the gifts you need to buy when the holidays roll around.

3. Make your holiday budget 

At this point, you know what you want to do over the holidays, approximately how much it will cost, and how much you’ll spend on gifts. Now you can put it all together and make a budget. Add any other expenses that come to mind, too, such as donations and entertainment.

You may want to use a budgeting app. An app can help you stay on top of your budget, spending, and savings goals.

4. Save money for the holidays

Starting as early in the year as possible, set aside money from each paycheck for your holiday savings. Send your money to a separate savings account if that’s easier. Some savings accounts also let you set up sub-accounts for specific goals.

Do the math on how much you’ll need to save to meet your holiday budget needs. If you expect to spend $2,000 over the holidays and you start saving eight months before the holidays, you’d need to save $250 per month. Assuming you’re paid twice a month, that’s $125 from each paycheck.

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Staying on Budget During the Holidays

With a budget, you’ll be in a great position to stay out of holiday debt. Here’s how you can save money and stick to that budget.

Shop sales

Sales happen year-round. You could take advantage of these discount opportunities if you keep an eye out for things you’d like to give, even if it’s not the holiday shopping season yet.

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 on Black Friday.

Track your holiday spending against your budget

Record all your holiday expenses throughout the year, including gifts, travel bookings, and anything else holiday-related. 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, so 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 Holiday Debt

If you have holiday debt, there are lots of strategies that can help you pay it off. The key is finding the strategies that work for you 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: Put all your extra money on the debt with the smallest outstanding balance, and make minimum payments on the rest. Once you’ve paid off that smallest balance, prioritize the debt with the next-smallest balance, and so on. You pay off debts quickly with the debt snowball method, which is good for motivation.

• Debt avalanche: Put all your extra money on the debt with the highest interest rate, and make minimum payments on the rest. Once you’ve paid it off, prioritize the debt with the next-highest interest rate, and so on. Since you’re deciding which debt to pay off first based on interest rates, you save money on interest charges with the debt avalanche.

• Debt consolidation: Get a loan, such as a personal loan or a home equity loan, to pay off your debts. Then, you only need to pay your debt consolidation loan going forward. Debt consolidation simplifies the debt repayment process, and it could also save you money if the loan has a lower interest rate than your holiday debt did.

Lower your expenses

Try to reduce non-essential expenses. Every bit counts. Maybe instead of paying for multiple streaming services, you cancel all but one for the time-being.

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 just until you pay off your holiday debt. 

Sell unwanted items like unused gifts or household goods you don’t need. You could sell items through an online marketplace, or the old-fashioned way with a yard sale.

Put any cash windfalls toward your debt. If you get a bonus at work or a tax refund, those are great opportunities to speed up the debt repayment process.

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

Here’s some simple, easy-to-follow advice that can keep you from spending more than expected during the holiday season.

Choose a holiday plan within your means

Remember that the holidays are about enjoying yourself and spending time with the people you love. You can do that on any budget, so choose a holiday spending plan that suits your financial situation.

Spread your spending throughout the year

Tackle holiday expenses, including gifts and travel bookings, over many months. You could score better deals this way, and as an added bonus, you won’t need to do a ton of last-minute holiday shopping.

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 following 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%. 

Stick to your spending plan

Resist the temptation to make impulsive purchases, even when shops are seemingly offering 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

You can have a fun time while following a smart spending plan. 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.

Use credit well

Try your best to pay off your credit cards in full by the payment due date. If you pay in full, your credit card company won’t charge you interest on your purchases. If you find it hard to follow a budget with a credit card, try sticking to your debit card.

A budget can help you enjoy your holiday season and start your new year without money worries. If you don’t have your holiday budget yet, get started today.