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Christmas time spending

Avoiding Holiday Debt

The holiday season is here once again! While that often means friends, family, and fun, it can also mean stress, anxiety, and debt. Most people have a lot of financial commitments at this time of year and, if you’re not careful, you could wind up spending more than you can afford.

Holiday debt can be a big issue. Huge credit card bills are something no one wants to unwrap.

If you can’t pay your credit card bill off in full when it arrives in January, you’ll owe a lot of money in interest. Most credit cards have incredibly high interest rates, so the more you spend on the card and the longer it takes you to pay it off, the more it will cost you. This can lead to serious financial trouble.

Here are some tips to help you get through the holiday season without taking on debt, so you won’t find yourself struggling financially when the new year arrives.

Decide What You Need

One reason a lot of people wind up in financial trouble, especially during the holidays, is because they go into the season without a plan. If you’re not careful, it’s very easy to overspend since there are so many wonderful things to potentially spend money on at this time of year.

Before you buy anything, sit down and make a list of what you want to buy. Remember to write down gifts, décor, clothing, food, drinks, and anything else you think you’re going to spend money on during the holidays. Then, once you have the list, write down estimated prices beside each item so you’ll have a rough idea of how much you are planning to spend.

Set a Budget

Once you have your estimated total, you’ll need to work it into your budget. If you don’t already have a budget, now is the time to make one. Write down everything you spend money on in a month. Then compare it to how much you earn. If you can’t afford everything, you’ll need to make cuts.

You’ll probably need to make some additional budget cuts over the holiday season so you can pay for your holiday spending. Look at your expenses and set some priorities. Obviously, paying your rent or mortgage will be a top priority as will buying groceries, travelling to and from work, and other essential spending. However, some spending isn’t as important, and this is where you can likely make cuts. Think of what expenses are the least important and the least necessary and consider cutting them, at least temporarily, so you can free up some money for the holidays.

Adjust your List

If you can’t fit all of your proposed holiday spending into your budget, even after you’ve made some cuts, you’ll need to adjust what you’re planning on buying. Again, making priorities will be important here. If you have to cut, you’ll want to cut the least essential items. Think of what holiday items you can do without. For instance, instead of buying something new to wear to your company’s holiday party, is there anything in your closet that you could put on instead? Do you have decorations from previous years? If you do, you might not need to buy new ones this year.

Track your Spending

Once you actually start shopping, it’s important to keep track of every dollar you spend. There are a couple reasons why. One is because you need to know where your money is going. If you don’t track your spending, you could end up running out of money before you buy everything you need. Try to write down purchases shortly after you make them, so you don’t end up forgetting any.

Another reason to track your spending is because things may not cost exactly what you expected. When you buy an item, take note of the price. Then compare this price to the estimate you made on your list. If you ended up spending more than you expected in one area, you’ll need to adjust your plan so you don’t overspend overall.

Don’t Go Overboard

It would be nice to have an unlimited holiday budget, but most people aren’t in that position. This means you’ll have to avoid going overboard with gifts and other spending. You likely don’t need to spend as much as you originally planned. You can still have a wonderful holiday season without breaking the bank.

Think about whether you actually need to buy presents for everyone you know, for instance. Try to come up with alternatives to gift-giving whenever you can. For instance, instead of buying presents for all your co-workers, why not go out for a group lunch instead? This will likely save each of you some money and you’ll get to enjoy each other’s company.

For those you are going to buy gifts for, set a spending limit. One gift is fine. You don’t need to arrive with a stack of presents for everyone. Remember, it’s the thought that counts. It’s better to make reasonable choices and avoid debt than it is to overspend and wind up in serious financial trouble.