The worst part of the binge, of course, is when we see our steroid-infused credit card statements in January and hope we can hold on financially until the tax refund arrives.
Here are some financial tips on changing your approach to spending, both before and after the holidays.
Pre-holiday Rules of Engagement
Before hitting the stores or Internet with a vengeance, take stock of your financial situation.
For example, the average U.S. household’s credit card debt is about $15,000, according to a recent study. That’s a tremendous amount to pay off, and will only get worse if we’re reckless during the holiday season.
Kim Poulos, a senior vice president at Primerica in Willowbrook, recommends starting with a budget.
Take stock of your fixed costs, such as mortgage debt, car payments and insurance. Then review the expenses such as groceries, entertainment, gas and clothes that can vary from month to month.
Finally, add up all of your income sources—such as salary and bonuses—and decide, after subtracting expenses, how much you might have for the holiday season. This might prompt you to look for part-time work or to sell extra items online to collect the cash you need to pay for your holiday splurge.
Seasonal spending tips
- Go old school with cash: “If there’s a certain amount of money that you’re going to spend, use cash,” Poulos said. Psychologically, we usually just buy what we need with cash, but with plastic we tend to overspend.
- Rein in restaurant spending: “When people’s budgets are out of whack it’s usually because of takeout and restaurant meals during the week,” she said. Poulos recommends planning ahead for dinner and bringing lunch to work.
- Shop earlier: When you wait until the last minute, “you get stressed out, just want to get it done and don’t care as much about spending too much,” Poulos said.
- Party smart: If you’re hosting a get-together, be creative. For example, have a pot luck event or plan a wine/beer tasting theme in which people bring their favorites.
- Decorations count, too: Make sure you budget for decorations and review what you already have before you buy something you don’t need.
- It’s the thought that counts: Could you make a gift instead of buying one?
If you’re not able to rein in your spending, or if your overall debts combined with holiday spending are too much to handle, Poulos recommends a couple of tactics:
- Roll down the debt: In this method, you would attack multiple credit card bills in an organized and deliberate manner. Put as much money as possible toward the card that has the highest interest rate while paying the minimum on all the others. Once the highest-interest card is paid off, apply all of those funds to the next one, and so on. According to Poulos, paying more than the minimum is essential because if you have a $3,000 balance on a card with 18 percent interest and only pay the minimum, it will take 10 years—and an extra $2,000 in interest—to pay it off.
- Create, and follow, a cash-only budget: For variable costs, put a specific amount of money in envelopes—such as for groceries, gas, entertainment—after each paycheck. “When you run out, you run out,” she said. “You can’t keep going to the card.” If you stick to this budget method, you can put extra money toward the principal and get out of debt a lot quicker.