6 Tips to Avoid Holiday Debt

The holiday season brings with it giving, travel, family gatherings – and if you’re not careful – unwanted debt. Here are six tips to make the season stay bright in your memory, free of regrets.

  1. Know the Facts

Despite the restraints of the pandemic, a survey shows that one in three Americans plan to spend up to $1,000 on the holidays, with one in four predicting they will spend up to $2,000.* This may seem like a lot when you consider the winter holidays span only a few months, so it’s important to know what you realistically can afford. Some questions to ask: Do you know what you spent on the holidays last year? Did you overspend? If you did, setting a budget will help you stay on track.

  1. Create a Spending Plan

The best way to spend without busting your budget is to make one. This means listing your income and all your outgoing expenses. By writing everything down, you’ll immediately know what extra money you can earmark for the holidays. One financial rule of thumb suggests spending no more than 1% of your overall income. Therefore, if your salary is $55,000, then your holiday budget would be $550. If you think you’ll spend over 1%, where will you get that extra cash? Consider getting a holiday job or cutting back on extras that could go toward your purchases.

  1. Make a List

When it comes to gift giving, a list can help you determine who you’re buying for and the amount you want to spend on each person. Include any extras like gifts for office parties, school events or charities. It’s helpful to add what you’d like to buy, because you can shop around for the best deals on particular items. Don’t just stick to store-bought presents either. Some people love homemade holiday treats, family members might prefer something more personal like framed photographs. If you have a big family, consider drawing names. Then you can focus on one special gift rather than a slew of little ones.

  1. Use Credit Wisely

Depending on how you use your credit options, there are ways to benefit from holiday shopping. For instance, if you like traveling, or getting cash back, then a rewards card may be just the ticket. But remember, if you don’t pay your balance off, the interest you’ll end up paying won’t be worth the rewards you get in return. If you tend to carry a balance, use a card with the lowest interest rate.

Retail credit cards may offer some serious discounts to keep you shopping in their stores. Some might offer a 0% rate for a set period of months with deferred interest, which is helpful when buying big-ticket items. While you may be tempted to shop until you drop, take care. According to a recent survey by CreditCards.com, the average interest rate on a retail credit card is 25.64%. This means if you don’t pay off those holiday purchases in full, you’re going to be stung by those extremely high interest rates. For 0% deals offering deferred interest, make sure you pay off the entire amount before that promotional period ends.

5. Traveling? Think Ahead

If you plan to fly during the holidays, it’s best to book airfare ahead of time to get the best deals – about two months out. But if you decide to wait until the last minute, you may save money if you fly in the early morning, or take a red-eye flight. Days of the week matter too. You’ll pay premium prices if you fly on Fridays and Sundays, so consider flying on a Tuesday, Wednesday or Saturday. And flying on Thanksgiving and Christmas may help you save money too.

If you’re renting a car, book early to get the best rates. Remember, you can still shop around without paying anything out of pocket. Of course, some rental car operators will offer lower rates if you pre-pay, but this may end up costing you if you must change your travel plans. Even if you rent a car once or twice a year, joining a loyalty program is free and offer insider incentives including free upgrades or rate reductions.

  1. Managing Debt and Saving Strategies

So what if after careful planning, you still end up with some credit card debt? Make a plan to pay it off as quickly as possible. Consider a balance transfer to a 0% offer, or negotiating a lower interest rate on your current card. Use our credit card repayment calculator to see how fast you can pay it off.

The best way to avoid acquiring holiday debt in the future is to start a holiday savings account. Open an account not connected to your checking account, so you won’t be tempted to dip into it.

*Source: Quantum Metric

Extra Credit provides general information to help improve our Member’s financial lives. Every situation is different, so please contact us for guidance on your specific needs. The advice provided in Extra Credit is not intended to serve as a substitute for speaking to a loan representative, financial advisor, or GreenPath Financial Wellness counselor who can help tailor a solution for you.

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