During the holiday season, spending typically increases as individuals and families take part in various festivities and traditions. This often includes purchasing gifts, decorating homes, and hosting holiday gatherings. Many people also spend money on travel during this time, whether visiting friends and family or going on vacation to celebrate the season.

When the season comes to a close and the New Year begins, many individuals and families find themselves facing credit card debt accumulated from holiday spending. Or, they depleted an excess amount of their bank savings. To avoid the dreaded ‘debt hangover’, we share 12 tips to help you make the most of the holiday season and still come out strong once it’s over. 

1. Set a Holiday Budget

It's well known that the holiday season can be hectic, filled with various commitments, parties, and activities. However, it's essential to take a moment to focus on your financial well-being for the final months of the year. This involves assessing your current financial situation, including income, expenses, bank savings and checking account balances, and any outstanding debts.

Once you have a good understanding of how much money you will need to allocate to your monthly expenses and debt repayments (e.g., credit cards, home mortgage, car loan, student loan), you can plan your holiday budget. Create a list of the gifts you intend to purchase, and their estimated costs. Consider other holiday expenses, too, such as meals, decorations, and travel.

2. Stick to Your Holiday Budget

It is important to adhere to the holiday budget you set for yourself. However, this is often easier said than done. You may see items that catch your eye—whether it's a gift for a loved one, a friend, a co-worker, or even something for yourself. Additionally, you might indulge in meals or treats while shopping that you didn't initially budget for. These unexpected temptations can make it challenging to stay within your planned financial limits but try hard to resist them.

Everyone's financial situation is unique, but it's advisable to limit your total holiday spending to no more than 2% of your annual income. For instance, if you earn $50,000 a year, your total holiday budget should not exceed $1,000, which is 2% of $50,000.

3. Track Your Holiday Spending

One of the best ways to avoid overspending during the holiday season is to keep track of your purchases. This involves logging the items you buy throughout November and December, their prices, the stores where you made the purchases, and the dates of your transactions. Additionally, it's important to keep records of non-gift expenses, such as holiday meals and vacation costs.

You can use a simple spreadsheet or a budgeting app to keep a running total of your holiday purchases. While tracking your holiday spending may require time and effort, it can help you avoid unwanted financial surprises in January.

4. Limit Use of Credit Cards

Credit cards offer the ultimate convenience for in-person and online shopping. However, the ability to make instant purchases with a simple swipe at a retail terminal or a quick tap on your smartphone can lead to overspending. Therefore, when shopping for the holidays, it's important to stay within your budget and only buy items you had already planned for. It is also advisable to use a single credit card for your holiday purchases.

You can keep tabs on your credit card by setting up transaction and balance threshold alerts via text and/or email. These alerts can prevent you from overspending without realizing it.

5. Avoid Opening Too Many Credit Cards

Although having multiple credit cards can boost your purchasing power, it also carries potential risks. Each additional card you apply for requires a "hard" inquiry into your personal credit report, which will remain on your credit report for up to two years.¹ Plus, a single hard credit inquiry can lower your FICO® score by as much as five points, with this score impact remaining for up to one year.²

It is also worth noting that an excessive number of hard credit inquiries can temporarily lower your credit score and make it harder to qualify for loans.

By using just one credit card during the holidays and keeping your balance at or below 30% of your total credit limit—as most experts recommend—you can avoid overspending and high-interest debt. This strategy can also protect your personal credit score.

6. Consider Alternate Gift Options

There is no rule that says you need to buy extravagant, costly holiday gifts. Simple, heartfelt gifts can often be more meaningful than elaborate ones, allowing you to express your gratitude without straining your budget.

Some cost-effective gift ideas include a treasured photo in a repurposed frame, home-baked goods (e.g., cookies or pastries), handmade items (e.g., a knitted scarf or custom-labeled gift bags), and a gift certificate to a favorite store or restaurant.

7. Sell Unwanted Items

If you find yourself with unwanted items taking up space in your home, such as clothing that no longer fits or housewares you rarely use, consider selling them online through an auction or marketplace platform. This can help declutter your space and provide you with some extra cash to put toward your holiday spending.

By generating income from your sales, you can also avoid accumulating more debt. You can use the money you earn from your sales to buy gifts in cash and limit your credit card use.

8. Don't Deplete Your Bank Accounts

While the funds in your savings and checking accounts may be easily accessible, you should exercise caution during the holiday season. Impulsively using these accounts for spontaneous purchases can quickly deplete your hard-earned balances, jeopardizing your future financial goals.

Plus, if your balance drops below the required minimum, you might be subject to monthly maintenance fees, which can add unnecessary strain to your budget.

9. Don't Fall Into The "Buy Now, Pay Later" Trap

The convenience of Buy Now, Pay Later (BNPL) can be enticing during the holidays, as it lets you buy gifts without the full upfront cost. Instead, your total cost is divided into multiple equal payments, with the first payment due at checkout. You will then be required to make the remaining payments over a period of weeks or months.

While BNPL can offer immediate gratification, you should approach it with caution. You may be tempted to make more BNPL purchases during the holidays than you can comfortably afford. Doing so can lead to excessive debt come January.

10. Shop Early And Look For Sales

Many large retailers and charming small businesses kick off their seasonal sales and promotions well before Black Friday. This early start gives you a chance to find deals that help keep your budget in check. By taking advantage of these offers, you can find great gifts while enjoying a more relaxed shopping experience, free from the last-minute rush.

11. Shop Online to Save Money

Shopping for holiday gifts online can help you save money while enjoying the convenience of browsing from the comfort of your home. You can take the time to compare prices, look for special holiday promotions, and make more informed purchasing decisions.

Online shopping not only saves on the cost of gift purchases but also eliminates the time spent driving to and from retail locations. This helps save on fuel costs and on additional expenses, like grabbing a quick meal, snack, or drink while out.

12. Plan For January Payments

As you celebrate the holiday season and make gift purchases, it's important to take a moment to prepare for the financial responsibilities that January will bring. In addition to your holiday expenses, you will likely have other commitments, such as rent or mortgage payments, automobile payments, utility bills, and fees for cable TV or streaming services.

So, create a plan to make timely payments and avoid late fees and higher interest charges in January and beyond.

By implementing these strategies, you can enjoy the festive, fun-filled holiday season without the burden of stress that can accompany a January debt hangover. 


Sources:
^{1, 2} https://www.experian.com/blogs/ask-experian/what-is-a-hard-inquiry/


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.