Happy Holidays, friends. Tis the season for reflection (hopefully!) and shopping (most likely!).
It’s ok. We know you. And unlike other money blogs, we are not going to discourage you from shopping. However, let’s look at the facts.
In the U.S., shoppers racked up an average of $1,054 of debt during the 2017 Christmas season — an increase of 5% over last year, according to a survey from MagnifyMoney, a personal finance website. According to their research, 44% of shoppers racked up more than $1,000 in holiday debt, and 5% accumulated more than $5,000 in debt.
Unfortunately for most, bouncing back from this debt will take several months. Less than 50% of these folks are expected to repay the debt within 3 months. While others, about 29%, shared that they needed more than five months to pay it off. This leads to credit card interest and we all know that this add up very quickly.
Let’s do a quick calculation! If your interest rate is 16% - you spend $1,054, and paid a minimum payment of $25 each month….you would be paying down that balance until the beginning of 2024. A total of $1,600 on a $1,054 purchase.
Basically, you will spend the next five years paying off the holiday purchases you made this year. Do not do that to yourself! Instead follow our simple steps below so that you can have your cake and eat it too.
Or should we say, have your fur coat and wear it without having credit card debt, too.
Here are seven steps to help you not fall into more debt this holiday season.
Make a list of the folks you want to buy gifts for this holiday season. It’s easy to grab last minute items as you randomly see friends on your Facebook timeline or passing them on the street. Stop that. Create a concise list of friends and only buy gifts for them. Everyone else can receive lovely handwritten note.
Set a budget for how much you will spend per person. Is it $50 per person? $100? $1,000? Whatever it is, choose one amount and determine the total amount you have to spend. For example, if you have 10 friends on the list, and decide on $50 per person, then you have $500 to spend. No more.
Hopefully you’ve been saving up this year for these purchases and won’t need to use your credit card. Ideally, I’d use a checking account, like the Radius Hybrid Checking account, to save up for holiday purchases. This account allows you to earn interest on your balance. Versus other banks that offer ZERO interest. Pull that amount out in cash. Yes, just do it. Carrying a ton of cash on you may feel awkward, so you can also pull out the set amount per person each time you shop for them.
Research ahead of time what you will buy for each person. Yes, we know you want to wait for inspiration to hit you while you’re in the store. But, let’s try something different this year and pre-plan the gifts. Cool? Great!
If you are using your credit card, create a plan for paying off your holiday gifts within 30 days. Brainstorm ways to increase your income to make that happen (you can check out our 5 Side Hustles You Can Do From Bed post) or ways to decrease your expenses to free up some cash.
If it’s going to take you more than 30 days to pay it off, then reduce the amount of money you are spending on gifts.
Remember that gift-giving is one way to show that you love someone. Spending quality time either in person or during a phone call is another beautiful way to connect with friends. And it doesn’t cost you any money.