HOW TO AVOID HOLIDAY DEBT THIS YEAR

If you want to avoid holiday debt this year, the most useful thing you can do happens before you buy a single gift. You decide on one total number for the whole season, and you write it down. Everything else in this post builds on that.

I know how much pressure this time of year carries. When my boys were small and we were living in an RV, I said no more often than I said yes. I wrote in Welfare to Wealthy about a day in the checkout line when my youngest asked for a toy car:

“It was a three dollar toy car. It was also a gallon of milk or two loaves of bread.”

You may not be in that place. But the feeling of wanting to give more than the budget can hold is the same, and in December it gets loud.

WHAT DOES A HOLIDAY BALANCE REALLY COST?

Here is a simple example. Say you put $1,200 of holiday spending on a credit card with a 24 percent interest rate, and you stop using the card after that.

1. 1

   If you pay $50 a month, it takes 34 months to pay off, and you pay about $451 in interest.

2. 2

   If you pay $100 a month, it takes 14 months, and you pay about $186 in interest.

At $50 a month, you would still be paying for this year's gifts nearly three holiday seasons from now. Seeing that number before you shop makes it much easier to stick to a plan.

HOW DO YOU MAKE A HOLIDAY SPENDING PLAN?

1. 1

   Pick your total. Look at what is actually in your account after bills, and choose one number for the season. Gifts, food, travel, decorations and parties all come out of it.

2. 2

   Make a list of names. Write down everyone you plan to buy for and give each person an amount. When the amounts add up to more than your total, adjust the list before you go to the store.

3. 3

   Plan the food and travel too. Holiday meals and gas to see family often cost more than the gifts, and they are the part most people forget to count.

4. 4

   Pay with money you already have. Cash or a debit card keeps the season from following you into next year.

5. 5

   Keep your receipts in one envelope. Check your spending against your list once a week.

Be careful with buy now pay later offers at checkout. They split one purchase into smaller payments, which can feel easy in the moment. Several of them due in January can stack up fast, and missed payments can bring fees. Read the terms before you agree.

HOW DO YOU TALK WITH YOUR KIDS ABOUT A SMALLER HOLIDAY?

Years later, when things were steadier, I changed the words I used with my boys. Instead of a flat no, I said this:

““Let’s see if that fits in the budget this month. If not, we can make a plan.””

Kids handle limits better than we expect when they understand them. Let them help choose a family activity or make a gift for someone. The memories they keep usually have very little to do with the price tag.

HOW DO YOU SAVE FOR NEXT YEAR'S HOLIDAYS?

The easiest way to avoid holiday debt next year is to save for it a little at a time. If you set aside $25 a week starting in January, you will have $1,300 by the end of the year. Even $10 a week adds up to $520. Open a separate savings account or keep a labeled envelope so the money does not quietly get spent on something else.

WHAT IF YOU ALREADY HAVE A HOLIDAY BALANCE?

If last year's holidays are still on a card, you are not alone, and it is not too late to make a plan. Stop adding to that card, then decide how much you can send to it each month. I walked through two ways to order your payoff in Debt Snowball or Debt Avalanche.

If you are carrying several balances at high rates, a debt consolidation loan is one option some people look at. Key 2 Debt Free is not a lender, and a licensed lender makes every approval decision. If you would like help laying out your numbers, you can book a session with me.

I wrote the full story of those lean years in Welfare to Wealthy, and the plain money steps I learned in The Key. If you want to talk about your own next step, you can reach me here.

Rachael J Katz is a financial educator, author and speaker. This article is general education, not personal financial advice. The figures above are a simplified example with a fixed rate and payment, and your own terms will differ. Quoted passages are from Welfare to Wealthy by Rachael J Katz.