10 Ways to Avoid Taking on Holiday Debt This Year

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October

10 Ways to Avoid Taking on Holiday Debt This Year

October 25, 2021

The holiday season will be here before we know it. Don’t let it sneak up on you; otherwise, you may find yourself racking up holiday debt.

According to the National Retail Federation, “Retail sales during 2020’s November-December holiday season grew an unexpectedly high 8.3 percent over the same period in 2019 to $789.4 billion.”¹

Keep in mind that this figure represents holiday spending during a pandemic.

Moreover, a good bit of those sales resulted in holiday debt.

A 2020 Magnify Money survey found, “About a third (31%) of all consumers took on debt to pay for holiday expenses this year. […] Holiday debt was defined as spending related to gifts, travel and entertainment. Those who incurred holiday debt this year borrowed $1,381 on average.”²

It is common for Americans to overspend during November and December, only to find themselves saddled with holiday debt in the new year.

Holiday debt holds back those planning their financial futures and makes it harder for them to achieve their retirement savings goals.

Use the following 10 tips to avoid taking on holiday debt during the 2021 season.

#1 Make a Plan Today

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Avoiding holiday debt starts with having a spending plan. Start by identifying how much money you have and are willing to spend.

Then, make a list of all the people you plan to buy for and how much you plan to spend on each person.

Next, consider the additional costs, such as travel, parties, hosting, entertainment, and décor.

Designate an amount you are willing to spend on each subcategory (e.g., $200 on food for the family Christmas party).

It is important to be honest and realistic about your holiday spending when creating this budget. If you only give yourself $30 for holiday entertainment, you will blow your entire entertainment budget shopping for gingerbread house supplies.

#2 Anticipate Shortages

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The pandemic has created supply chain issues that are continuing to affect store shelves, which means shortages during the busy holiday season.

According to The Washington Post, “Analysts say they expect widespread shortages, less selection and higher prices for a number of popular holiday gifts, including gaming consoles, TVs, toys and sneakers.”³

In fact, retailers are already raising the alarm.

For example, Home Depot announced it sold out of early release Halloween décor almost immediately, which is a sure sign Christmas stock will fly off the shelves.⁴

While the supply chain issues have created shortages, it also means rising costs on popular products.

ABC 7 NY reports, “Toymaker Mattel whose brands include Barbie, Hot Wheels, Fisher-Price and American Girl, said in an earnings conference call on Tuesday that it is raising prices in the second half of the year in the run-up to the holiday shopping season.”⁵

Consider your gift list and anticipate shortages.

Don’t wait to order something until the last minute, or you may risk paying significantly more or not being able to get it under the tree in time.

#3 Track Your Spending

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Anyone can create a budget. The hard part is sticking to said budget.

This is why it is necessary to track your spending – especially during the holiday season. All those stocking stuffers add up!

Tracking your spending should help you from going into holiday debt.

Use a budget app where you can quickly and easily input your purchases.

#4 Use Credit Cards Wisely

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According to Magnify Money’s 2020 Holiday Debt Survey, “More than half (56%) of borrowers pulled out the plastic this holiday season. The vast majority (89%) of those who took on holiday debt won’t pay it off within one month, which could translate to pricey interest charges for credit card users.”⁶

Paying off 2021’s holiday debt in 2022 won’t be very fun.

The basic rule is that, if you can’t pay off your credit card when the bill comes in, don’t use it for holiday shopping.

However, if you have budgeted for holiday spending, take advantage of credit card rewards (such as airline miles or cash back).

#5 Shop Smart

holiday debt

The good thing about preparing in October for the holidays is that it gives you time to shop smart.

You can take your time shopping around to find the best deals.

While Black Friday is the most popular day to shop for holiday gifts, you can already find discounts on popular items.

Always compare prices with other online retailers before making purchases. Install a browser extension like PriceBlink, which shows you the price of the same product at various retailers, as well as coupon codes.
Always search for online coupon codes for the retailer on sites like RetailMeNot.
For high-priced gifts on your list, sign up for deal alerts on sites like camelcamelcamel.com.

#6 Instead of “Ho, Ho, Ho,” Say “No, No, No”

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Retailers are sensing that people are inspired to celebrate the holidays big time this year (take the Home Depot Halloween sellout, for example).

While we can appreciate everyone’s festive spirit and sense of merriment, it is important to not lose control.

Going overboard on decorations, holiday get-togethers, and gifts is a quick way to go into holiday debt.

Get comfortable saying no to impulse buys.

#7 Be Honest with Yourself and Your Family and Friends

401(k) plan

As mentioned, it is easy to get caught up in the holiday merriment and wind up with holiday debt.

Instead of this happening, take an honest look at your current financial state, as well as your goals.

Do you have the money to spend on a lavish holiday? Or do you need to cut back this holiday season?

If the answer is that you need to spend less, then have a talk with your family.

Be upfront about what they should and should not expect this year. It may be an awkward conversation to have, but it’s worth it.

#8 Have a Plan for Holiday Bonuses and Cash Gifts

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Most of us remember the holiday bonus from the film Christmas Vacation.

Clark Griswold has been planning to build a pool for his family with his bonus check. Instead, he gets enrolled in a jelly of the month club.

While the movie is a funny one, Clark teaches us a valuable lesson here.

Don’t spend your yearly bonus before you get it because there is a chance you may not get one this year.

Don’t be tempted to spend more on the holidays than you should because you hope to receive an annual bonus that will pay off holiday debt. You may end up enrolled in a jelly of the month club.

Even if you do anticipate receiving a bonus from work, have an idea of how you will spend it (such as investing it or maxing out your contribution limit) so you don’t blow it

#9 Avoid Dipping into Your Savings

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The pressure to overspend during the holidays leads many people to take money from their emergency savings or even their 401(k) accounts.

T. Rowe Price’s Parents, Kids & Money Survey found, “To cover holiday spending, 10% of parents have dipped into their emergency fund, 7% have taken a payday loan, and 4% have withdrawn from retirement savings.”⁷

This should be avoided at all costs. That expensive toy isn’t worth drawing from your emergency or retirement savings.

#10 Start Saving for Next Year

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Possibly the smartest way to avoid holiday debt is to start preparing far in advance.

Many people create a holiday savings account, putting monthly deposits into the account all year long.

Think of it this way. It’s much easier to save $50 a month than it is to try to come up with $600 on the spot.

Consider this year’s holiday spending budget and see what you can do to make it possible to reach this budget next year using a year-long holiday savings account.

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