Here are 3 practical ground rules that will ensure that you have the cash for your holiday spending.
With the holiday season quickly approaching, there are lots of things to plan for — holiday parties, cookie exchanges, and of course, presents.
Since the holidays will look somewhat ‘normal’ compared to last year, many people feel obligated to make this year’s Christmas or Hanukkah one to remember. While that’s an admirable goal, it doesn’t have to mean breaking the bank.
According to a recent poll conducted by Credit Karma, about 33% of Americans have already admitted that they plan on racking up debt this holiday season by paying for their holiday gifts with credit cards, knowing that they’ll have to pay off those balances for months afterward.
While emergencies (medical issues, home repairs, etc.) are understandable charges to put on your credit cards, are holiday gifts really worth going into debt? As a bankruptcy attorney, my answer is a firm ‘no,’ and here’s why:
What if you end up having a medical emergency, or some other emergency in the near future? If you don’t have a ‘rainy day’ fund, and you needed to use your credit card, would you have a big enough credit line to cover the cost of those bills, or would your gifts take up most of that available credit?
In order to avoid that stress, and to fully enjoy the holiday gatherings with your family and friends, here are three ways to ensure that your credit cards will stay safely tucked into your wallet when it comes time to buy your gifts:
Remember: Holiday gifts should not put you into debt!
1.) Do a gift exchange.
If you have a big family, such as multiple siblings, in-laws, and so on, buying a gift for each of them is going to make a huge dent in your paycheck, or worse, force you to charge your credit cards. And chances are, it’ll be that way for the majority of people in your family too.
This is the perfect time to be transparent, and to let people know that you love them, but just can’t afford to buy all of them gifts. While it may seem like a ‘Debby Downer’ thing to say, most of your family members will probably be relieved, as they’ll most likely be in a similar situation.
You can end the conversation on a positive note by offering an alternative so that each family member still gets a gift: Doing a gift exchange! You could put each person’s name on a piece of paper, fold it, put it in a basket, and have everyone draw names.
You can also put a spending limit on it: For example, only spend up to $100 on the person whose name you chose. That way, everyone gets a gift, and no one has to go broke or rack up debt on a credit card by spending that amount of money on every person in the family.
If you have young children, you’ll probably want to get each of them a gift, so a happy medium would be to do a gift exchange with all of the adults in the family (the spouses, aunts, uncles, parents, and/or grandparents) so that you’re only buying a gift for one adult, and then buying each of your children a gift.
2.) Narrow down your recipient list, and limit the number of gifts.
Even if you decide to do a gift exchange with your family, you may be tempted to buy for friends, co-workers, neighbors, and so on. While it’s thoughtful to want to do so, it’s important to narrow down your list of people who will receive a more expensive gift.
A nice gift for your best friend or a co-worker who you eat lunch with every day might fit into your budget, but more than a couple of people will start to get really expensive.
If you still want to acknowledge other friends and acquaintances, a plate of homemade cookies with a handwritten note is a generous gift that won’t cost you hundreds of dollars. Homemade gifts are just as thoughtful, and can allow you to spread the holiday joy without maxing out your credit cards.
3.) Turn down credit card offers from department stores.
In November and December, department stores offer special discounts if you open a line of credit with them. In order to avoid the temptation, remind yourself that these store credit cards come with very high interest rates, such as 22.99% – 27.99%.
It’s important to remember that because even if you get 15% off of your purchase for opening a line of credit with a department store, you might end up paying way more in interest if it’ll take you a long time to pay it off. For example, if you spend $800 at a store, and you get 15% off for opening a credit card, that’s $120 in savings, which makes your total $680.
However, if it’ll take you a year to pay off that $680 (let’s say you can only pay about $60 a month), and your interest rate is 27.99%, you’ll end up paying about $190 in interest. So you saved $120 for opening the card, but then you’re paying $190 for the ‘privilege’ of using that card.
So your grand total for those gifts ends up being $870, even though the initial balance without the 15% discount was $800. Is it worth it to pay $70 more dollars in the long run, and also make monthly payments for an entire year, when you could be using those monthly payments to pay your bills or put into a savings account?
When you think about your long-term financial goals, it’s best to not let holiday spending get in the way of achieving those goals. Since there’s still plenty of time, it’s good to start budgeting and saving now, so that when you have to buy gifts in the several weeks, you’ll have a solid game plan that leaves your credit cards untouched, and your life stress-free.
Do you have other ways that you avoid debt during the holidays? Feel free to share your ideas in the comment section of our Facebook post! For additional tips on how to avoid overspending during the holidays, click here!
All the best,
Tracy L. Hirsch
Louisville Bankruptcy Attorney
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