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Avoiding Holiday Debt

Avoiding Holiday Debt

Warning! Warning! Holiday Debt Season Fast-Approaching at hurricane force!

THE holiday season really is just around the corner - Halloween, Thanksgiving, Christmas and all that goes with it; the parties, the gifts, the travel expenses, and the food. Already you can find holiday themed decorations lining the entrances of department stores - and it won't stop until the middle of January.

Let's make a deal right here and now, ok? Raise your right hand [uncross the fingers on your left hand] and repeat after me, "I promise I will not overspend, max out my credit cards, buy just one more thing for my 4th cousin six times removed that I barely know, practically cater every party I attend by taking so much food a family of 4 could eat for a week, miss my mortgage payment to buy more presents, take out a loan, or sign up for more department store cards." Listen, you can have loads of fun during the holiday season and you don't have to drive yourself into financial ruin to do it. Here are a few tips and bits of information to keep in mind as you prepare yourself to do battle at the stores this season.

You don't need to turn into a Grinch

While it may sound so simple that Cindy Lou Who could do it, only about half of Americans really bother to put together a budget for their holiday spending. Putting numbers to paper may be the easiest way to rein in that overwhelming temptation to splurge. The key to making a good holiday budget is to be realistic. In fact, it helps to have an honest, open conversation with your partner to decide how much you can comfortably afford and what you don't want to spend.

So now you know how much, decide who

It's time to let you in on a little secret. You're not Santa Claus. As much as you want to, you can't give presents to everyone. Make a list, check it twice, and prioritize. Lift that financial burden from your red-clad shoulders and reflect on the people who matter most to you.

Try the Rule of 2s or 3s

If you have children in your life it's easy to stroll through the toy aisles imaging those bright, innocent eyes light up with joy and excitement when they open THAT present, and then THAT one, oh and then there's THAT one, and on and on it goes. Most children are altruistic and can understand the concept of saving, and cutting back. Try having your children pick the two maybe three most important things on their Christmas List which can help them to focus on what they really want, and even to manage their expectations.

Start Saving and Buying Early

So now you know how much, who and in some cases, what. Now, it's about the how. There are several tips and tricks you can use: have a yard sale, save up your credit card points and redeem them for gifts, pet-sitting, clean out your garage and take those things you haven't seen in the last 10 years to the local pawn shop, sell on consignment, sell on ebay, and according to blogger the Money Saving Mom there are 31 more ways to earn extra money for the holidays.

When it comes to holiday shopping no one sets out to spend more than we should, but we have been trained since birth that Christmas is the season of giving, and spending. This unfortunately means that we can easily fall into shopping traps. Blogger Carrie Smith with PTMoney.com shares three strategies to help you safely avoid them.

1. Low or No Interest Offers

Be careful with this one. These can be enticing offers like "no interest for X months," especially on the bigger ticket items that you if you think about it, probably don't really need like electronics or furniture. Read the fine print, you might find that you're required to pay the interest you accrued during the grace period or face penalties and fees. In general, and during the holidays, you can save on interest using a credit card IF you can pay for the purchase right away so you're not carrying a balance on your card. Or better yet, put off the bigger purchases until you can pay for them in cash.

2. Department Store Credit Cards

Get an extra 10% or 15% off your purchase if you sign up for a store credit card! It's certainly tempting - especially during the holidays. Keep this in mind:

- It could hurt your credit score if you apply for too many new cards in a short period of time. These cards also have really low credit limits, which can lead to easily maxing out your limits (which also negatively affects your score).

- You can easily get caught in a dangerous cycle of charging balances on multiple cards and not being able to pay them off in time, resulting in extra interest charges and late fees which can get very expensive.

- And to top it off, interest rates on department store credit cards can be extremely high, up to 30% at some stores.

Instead see if the store offers coupons and bonuses if you sign up for their email list. You can also search sites like Coupon Chief for digital coupons or a site like RetailMeNot.com for discount codes and printable coupons. Sometimes you can get a better discount with a coupon than the 10% they offer when applying for a store credit card.

3. Overspending and Impulse Buys

Do not be fooled by the ease of whipping out your plastic to pay for purchases you can't normally afford. While impulse spending may feel good in the moment it can lead to a financial hangover, which you don't really want. The easiest, most fool-proof method of avoiding this one is. drum roll please. a shopping list. Make a shopping list in advance just like you do when buying groceries, stick to it, and you should have little problem making sure your Christmas spending stays reasonable.

Another way to avoid overspending is by shopping with smart spenders. Instead of letting big spenders use peer pressure to influence you into making purchases you can't necessarily afford. If you have friends that are frugal shoppers, ask them to come along when you make a shopping trip. You can bounce ideas off them, while knowing they share the same goal: saving money and avoiding debt.


Celebrating on a Budget

If you like to celebrate, especially on New Year's Eve, you may end up with extra expenses that are nothing to celebrate. But don't let that dampen your drive to party. With resourcefulness and some savvy social planning, it's easy to host a truly memorable holiday event that won't result in a pile of bills you'd just as soon forget. After all, as June Schroeder, CFP at Liberty Financial Group in Elm Grove, Wis., points out, "The holidays aren't about spending money; they're about spending time with people you care about."

Here, courtesy of the Financial Planning Association, are some ideas for balancing the party spirit with wise wallet management.

Start with a plan

Before you spend any money, decide on an amount you can afford to spend on the party. This will dictate the shape the event ultimately takes, including the venue, guest list, and the food and drink. Keep in mind, too, that the holidays will likely leave you with other additional financial burdens.

Steer clear of credit cards

Cover party expenses with cash or a debit card whenever possible so you won't face a ballooned credit card balance come the New Year.

Cut the caterer and get cooking

You don't have to be a gourmet cook to come up with crowd-pleasing and cost-effective food for your guests. Additionally, you can always ask a friend or relative with culinary skills to help in the kitchen.

Party pot-luck style

Instead of doing all the cooking yourself or hiring a caterer, give people a chance to tap into their own holiday spirit by asking them to bring something to eat or drink to the party.

Dial down dinner: It wouldn't be a party without food. Instead of feeding everyone dinner, build your event around eats that won't devour your budget, like desserts, appetizers or lunch. Consider an open house with snacks instead of a sit-down meal. "Less formal can be more fun anyway," said Schroeder.

Do-it-yourself decorating

Collect pine boughs, pine cones and other "found" items to make your own festive holiday decorations.

Party favors to savor

Planning to provide people with something to take home? Try homemade baked goods or simple holiday ornaments.

This article was submitted by the Financial Planning Association, the membership organization for the financial planning community. FPA members are dedicated to supporting the financial planning process in order to help people achieve their goals and dreams. Submission of this article does not imply an endorsement or recommendation of the Financial Resource Center site.