How to reduce holiday debt
New Year's Eve may leave a very real hangover for many revelers, but a financial hangover is a much more common problem after the holidays are finished and the decorations are taken down. Many parents, spouses and partners overspend on their loved ones over the holidays and start the New Year saddled with credit card debt and with their finances in relative shambles.
The holidays are traditionally a time of excess. In this article, we'll show you how to avoid at least one type of holiday hangover.
December tends to be an expensive month, even if the costs of Christmas gifts are factored out. For the northern climates, this is a time when housing expenses - particularly the heating and electricity bills - increase. The cold weather and shortened days also result in higher transportation costs, as walking and biking lose their practicality.
In the midst of this financial pinch, we have the most expensive holiday of the year. In 2011, the average American spent roughly $646 on gifts, according to the American Research Group. The financial crisis brought this number down around $417 in 2009. The National Retail Federation (NRF) estimate about 36% of those purchases were made with credit; if a person is using a high-interest store card to shop, even a $100 purchase can become a huge burden to carry into the New Year.
When you are in the thick of holiday shopping, adrenaline flowing, a game system under your arm, a teddy bear clenched in your teeth and a credit card in your hand, it is worth taking a moment to consider with what kind of debt you're buying all of this.
A store card, for all its apparent benefits in discounts, is usually a poor choice to hold debt because these are issued with an interest rate that reflects the qualifying requirements - basically the ability to go to the till and ask for the card. These high interest cards are fine as long as you pay the complete balances before the billing period expires. If you don't, all of the gifts you buy become even more expensive with the additional interest expenses.
A revolving line of credit is the easiest way to do this if you don't have cash on hand. Getting one requires a strong credit rating, but they offer flexible capital at low interest rates. If you aren't in a position to start one, you can roll the store card balances onto lower interest credit cards. If you will be consolidating your debts into a fixed loan, it is best to wait until you're done shopping.
Christmas has been celebrated on December 25 for more than 1,500 years, so there is no excuse for being unprepared. In the case of known expenses, it is better to save to spend rather than to spend and then pay off the debts plus interest.
If you shop for the holidays on credit, the real cost of what you buy may exceed the actual worth of the goods purchased. This is never a good thing. A savings program requires discipline and forethought, but there are even Christmas club accounts designed for this purpose. These are automatic withdrawal savings accounts that pay out the balance plus accrued interest when the holidays roll around. It may be too late this year, but there is no excuse to be caught by surprise next year - start planning now!
Thinking ahead also means making a list, checking it twice, and going after the lowest price rather than getting caught up doing your thinking in store. That's how a person ends up overbuying for others as well as finding the odd deal for him or herself. In 2010, the average shopper is expected to spend about $112 of his or her holiday total on themselves, according to the NRF. One thing you can do to keep your spending under control is to write up a gift plan and take it with you on your shopping trips. If it isn't on your list, don't buy it.(