Perhaps the best gift you could give yourself for Christmas is no new debt. Next to Alabama and Auburn football, the holiday season is one of the most exciting times of the year and each of us has a tendency to go a bit overboard with gift-giving and spending. As a result, too many people discover in January that what they owe on their charge cards is more than the cash they have on hand. If fact one research study indicated that the average amount of new debt accumulated during the holidays is $986. If you just paid the minimum required payment at a 15% interest rate (which about 27% of the people do), it would take ten years to pay off the debt including approximately $400 in interest. To avoid this, you need two things:
- A commitment to create no new debt over the holidays and
- A plan
Assuming you’re committed, here’s the plan:
- Decide now how much you can afford to spend without creating any new debt. Start by looking at your checking and savings account balances. You’ll also want to do a quick review of the bills you’ll owe through the end of the year…in other words do a mini budget. Decide how much, if any, of savings you’re willing to spend. You should end up with a specific dollar amount you’ll spend over the holidays. A good idea is to segregate this money and use it to pay for your gifts.
- Make a list. Now that you have your budget, make a list of all the people you’d like to give gifts to and then, beside each person’s name, put a dollar limit on the maximum amount you plan to spend taking care to make certain your individual totals don’t exceed your overall budget. It’s ok to use credit cards for your purchases as long as you have the cash to pay off the full balance when it arrives the following month. You’ll find lots of sales both at stores on from online retailers so starting early will allow you to stretch your gift-giving.
- Focus on the children. With the current state of the economy, many families continue to be very conservative with their finances. If your resources this year are more limited, consider establishing a ‘moratorium’ on gifting between spouses, siblings and parents and focus on gifts for your children for they are the people who are most excited and have the greatest expectations during the holiday.
- Give something back. Since the Great Recession of 2008, our economic recovery has been both slow and segmented leaving many families in dire financial straits. If you can spare the time or resources, consider how you and your family might reach out to others in greater need. Use this holiday season to teach your children the importance of giving to others. There are many ways to accomplish this. You can donate clothing, food, money or you can spend some time working in one of the many shelters located in your home town.
Don’t forget that there are lots of gifts that show you care without spending a fortune. One of my favorite gifts is a spicy cheese ball a friend gives us each Christmas. I also look forward to the sugar cookies made by another longtime friend. Or it can be as simple as a personal note expressing what one’s friendship has meant to you. Make this year your best holiday season ever by giving gifts that count and creating no new debt.