11-28-2016 07:00 AM
Content provided courtesy of USAA.
By Mikel Van Cleve, CFP®
I get so excited each year when the holidays come around. It’s a time for joy and laughter, spending time with family and friends and sharing our blessings.
Unfortunately, for some, it’s also a time of overspending that leaves them feeling haunted by the ghost of holidays past when the credit card bill arrives in January. The National Retail Federation is projecting that consumers will spend an average of $935.58 this holiday season, which is more than most Americans have in their savings account.
Many of us will be tempted to spend a little more than we can afford this holiday season. After all, ’tis the season for giving. But before you completely toss your budget out the window, consider:
- National credit card debt was at $729 billion as of mid-2016.
- Average household credit card debt for indebted households (those with unpaid credit card balances stretching out over several months or longer) is $15,675.
- The average household is paying a total of $6,658 in interest per year.
- Consumer counseling agencies report a 25% increase in the number of people seeking help in January and February, mostly attributable to holiday spending.
I don’t know about you, but I would rather avoid being part of those statistics. Here are some steps we can take to stay away from the Ghost of Holiday Debt.
- Set spending limits. Follow a budget to reduce the risk of overspending. This helps avoid impulse purchases you might regret later. Set limits not only for gifts but also other holiday-related expenses, such as food, decorations and travel.
- Develop a plan of attack. Before setting foot in a store or visiting a retail website, make a list of what you want. Then, look up prices online and add up the costs. If you are over your spending limit, see what you can cut. Look for deals, comparison shop and avoid getting caught up in the excitement of things like Black Friday, Cyber Monday, etc. Remember, sometimes the best gifts are the ones that don’t cost anything at all.
- Avoid going into debt to finance holiday spending. Using a credit card for convenience, added protection and rewards is perfectly fine, but credit cards work best if you have the money to pay off the balance in full when the bill comes due. Avoid the temptation to open up store credit cards. No matter how “great” the deal may seem, store cards are typically a better deal for the store than for you.
- Stick to shopping with companies you trust. Take measures to protect against the ever-increasing threat of identity theft. Thieves definitely do not subscribe to the belief that it is more blessed to give than to receive.
It’s easy to get caught up in the holiday shopping frenzy, especially when ads bombard us from all directions. It may take willpower to keep our spending within manageable limits, but the payoff is that we can wrap up 2016 in a festive fashion and begin the new year in a stronger financial position.