How to Control Holiday Spending and Avoid Holiday Debt

holidays

Holidays can become the time of year when our financial plans fall away, and debt builds up. That holiday debt makes us start the new year in the red, which is stressful and dangerous in uncertain economic times.

Paying off debt after the holidays is never easy, so the best thing to do is to avoid debt in the first place. And if some holiday debt does creep in, find ways to be proactive to ensure it is easier to deal with later.

Create a holiday budget with hard spending limits

The first and most important tip for avoiding holiday debts is to use a budget. That means creating a plan, in writing, for every dollar you are going to spend this holiday season.

Your holiday budget needs to have hard limits if it is going to be effective. That means no cheating, and no dipping into debt or savings to get through when money gets tight. Create a spending cap and abide by that limit.

The most important spending limit is the one that helps you avoid debt. What cash do you have in hand, and what have you saved for this holiday season? That is all you have—do not set a limit higher than what you can realistically manage without sinking into debt.

Related link: Christmas Savings Plan – How to Save Money Before the Holidays

Change spending expectations

Many of us have had a strange couple of years with pandemic lockdowns and quarantines. We may not have seen our families all together for a few holiday seasons. That makes this an excellent time to change expectations.

A secret Santa gift exchange can be a fun and cost-effective idea. Divide names by men, women, teens, and children 12 and under (vs 18 years old) and let the groups draw from a bowl. A poster board of each participant’s name can have gift ideas, or a group mascot can be appointed to keep a master list of “wants” and “needs” and also serve to do name drawings on behalf of participants that aren’t available to select a name. Choose to have everyone make homemade instead of purchasing them, or set a low gift limit ($10).

Talk to loved ones in your gift-giving circles about setting spending limits, or abstaining from giving gifts to each other. If you have been thinking about giving to charity in another’s name, this might be the best year to start that new tradition.

Give, and ask for gift cards

Usually, people think of gift cards as a way to let someone buy something for themselves that they might not have otherwise bought. A gift card enables your recipient to grab an item that is interesting or desirable to them but might not have made the cut in their regular budget, or to put toward money they have been saving for the gift.

But this year, think more about gift cards that will offset normal spending. A gift card for gasoline or the grocery store lets someone have an easier time shopping for their regular purchases. This year we could all use that kind of help.

Think of gift cards for things like streaming services—even if someone already has a subscription to Netflix or Hulu, a gift card could let them go a few months without having to make that payment.

Importantly, if you get that kind of gift card, use the money you normally set aside carefully. If a gift card to a subscription service saves you $15 per month for a few months, then use that money you saved to pay down debt or to add to your savings account.

This is also a good time to make an inventory of all the gift cards you have lying around. Plan to use all the gift cards you already have this holiday season to offset your holiday spending, or to pass on to another gift recipient.

Don’t forget spending for gatherings and meals

When thinking about holiday spending gifts are not the only major expense. Don’t forget to budget for your gatherings and family meals.

If this is your first big family gathering in a few years, you might be tempted to go overboard. But remember what we said about resetting expectations. Talk to your invitees about bringing dishes and sharing the work and expense of preparing a big family meal.

Just like we want you to go through your gift cards and use the ones you have accrued, we want you to go through your pantry and freezer and try to use everything you have before buying any additional food or ingredients. Part of the holiday meal is celebrating the year that has passed in preparation for a new year… try to make that new year a fresh start by using up what you have on hand before buying anything new.

Besides meals, another holiday spending category is decorations. Like with your gift cards and pantry, do an inventory of the decorations you have. If you have anything you are not using, box it up for a future yard sale or to share with family, friends, or co-workers.

Challenge yourself not to buy any additional decorations—make something by hand if it saves you money and helps you celebrate the season frugally.

Do the same for gift wrap. Resolve not to buy any more gift bags or wrapping paper until you’ve used up any leftovers you have from previous holiday seasons. Consider repurposing paper bags by putting the store name on the inside and decorating the outside. Make the gift part of the wrapping. For example, wrap using decorative dishtowels if they are a part of the overall gift.

Don’t get caught up with trends

This year, holiday spending is expected to be up from previous years. Don’t follow this trend! If you had leaner holidays last year, stick with that spending level.

Sales, promises of free shipping, and disruptions to the supply chain will get you thinking you need to spend more. Resist those influences.

Yes, you need to budget and shop early to ensure you can find all the things you need this year. But don’t let marketers trick you into panic-buying because they tell you the shelves are going to be empty by Christmas.

Any marketing, even a mainstream news report, that seeks to create a sense of urgency should be regarded as suspicious. Just like we tell people when coaching them to avoid scams, if someone tells you there is no time to wait and you have to act now, do not trust them. When stores convince you to rush out and buy today, your holiday budget is in jeopardy.

Move holiday spending to another time of year

As a gift idea, consider offering some future spending that will come at a different time of year. This will let you move the gift into your holiday budget to a time when there are fewer financial pressures.

Say you are gifting a camping trip or white water rafting—these are not things someone is going to do in December or January. By gifting such a trip next summer, you are moving some spending, while still giving a thoughtful gift.

You could even gift part of the money now. For example, if you are gifting a trip you could get a gift certificate for airline tickets, and the recipient can wait to see when plan fares go down before booking the flight. If you are gifting other parts of the trip, the extra costs of the trip, like hotels and meals, will come later when you are not overwhelmed with holiday spending.

You could also think about events that do not happen around the holidays—buy tickets for a major league baseball game or a trip to a state fair. The tickets are only part of the cost, which you will spend as part of your holiday budget. But if the travel expenses are also part of the gift, you can worry about those in next year’s budget.

Plan for next year now

We say this every year: take notes. Take time to do a written recap of your holidays. What worked and what didn’t? What inexpensive gifts were a hit? At dinner, what dishes did no one touch, and what disappeared first?

Do not rely on your memory next year—we have a long year ahead of us, and you should make the next holiday season easier on yourself by setting out, in writing, what you learned and what spending and budgeting moves were most effective.

Keep this summary with your copy of this year’s written holiday budget. Did you go over budget? What budget items did you forget to include? Are there areas you can cut back on next year? All of that paperwork will serve you well the next time you assemble a holiday budget.

When it comes to paying off any debts that accrued during the holidays, it really helps to look over your summary of holiday spending. Debt becomes a thing you hide from if you let it get too large, but by staying informed and aware, you will know exactly what your spending looks like and where to make changes to get by as a new year begins.

Speak to our certified Financial Coaches to review all of your options and discuss best strategies for getting out of debt.Speak to our certified Financial Coaches to review all of your options and discuss best strategies for getting out of debt.

About The Author

Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovative ways to motivate and educate community members and students about financial literacy. Melinda joined credit.org in 2003 and has over two decades of experience in the industry.