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How to curb your holiday spending and avoid debt

Shelly  Gigante

Posted on November 30, 2023

Shelly Gigante specializes in personal finance issues. Her work has appeared in a variety of publications and news websites.
Avoiding holiday debt
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Tell you how much debt the average American incurs during the holidays on gifts, travel, and entertainment. 

Suggest DIY strategies to help you set limits on your spending.

Explain why paying with cash can save you money during the holidays.
 
   

The holiday season is in full swing and shoppers are busy filling their carts with the perfect gifts for the special people in their lives. If history is any guide, however, many are also spending beyond their means.

During last year’s gift giving season, about a third (35 percent) of all consumers took on debt to pay for holiday gifts, travel, and entertainment — borrowing an average of $1,549, according to a LendingTree survey. More than one third (37 percent) said their debt would take at least five months to pay off.1

That can be costly in a rising interest rate environment when credit card borrowers who carry a balance face higher fees, making it harder to dig out of debt. (Learn more: How higher interest rates may hit consumers)

This year, shoppers may be more inclined to pare spending on gifts, travel, and big ticket experiences given the effects of rising inflation. A 2023 NerdWallet survey found that more than half of holiday shoppers (56 percent) said they would not be able to buy as many gifts this year as they would like due to inflation. Others are likely to stay home rather than travel this season to save money.2

Consumer research from MassMutual also reveals that half of holiday shoppers in 2023 plan to cover their costs with money they have set aside, up from 44 percent last year.3 That’s encouraging. “It is crucial to recognize that challenging times require more thoughtful financial planning, and this is a good moment in the year to reflect on what’s ahead,” said Paul LaPiana, head of MassMutual brand, product and affiliated distribution. “Make a list and check it twice: prioritizing savings, reducing debt, and diversifying investments can help people safeguard their financial well-being and protect their loved ones.”

Shoppers can take additional steps now to limit the debt they incur during the holidays by:

Indeed, there’s still time to avoid a “holiday hangover,” the sticker shock many experience when their credit card bills comes due in January, by keeping your spending in check, said Marguerita Cheng, chief executive officer with Blue Ocean Global Wealth in Gaithersburg, Maryland. Digging out of debt is no way to start the New Year, she pointed out.

“I do think folks overspend this time of year,” she said. “Some people are impulsive. Others honestly don’t realize they’re overspending. It’s even happened to me. Not because I neglected to plan or exercise self-control, but because I didn’t take into account the gifts I give for all my kid’s activities — the coaches, the piano and karate teachers, and religious education teachers.”

Cheng is not alone. Americans expect to spend an average of $923 on gifts during the 2023 holiday season, down slightly from $932 last year, according to a recent Gallup poll.4 But actual spending can be far greater, depending on one’s income, financial discipline, and expenses. Travel costs, new clothes for year-end social events, and hosting holiday parties doesn’t come cheap.

If you count yourself among the many who regularly overspend this time of year, you’ll need a three-pronged strategy to stay out of debt.

Holiday spending budget

Before you buy another item, do some math to determine how much you can comfortably spend — without going into debt. The goal is to avoid putting any charges on a credit card that you can’t pay off in a matter of months. (Related: Handling credit card debt)

Some financial experts suggest never putting anything on a credit card that you can’t pay off in 12 months or less.

Remember, that $1,000 credit card balance in January will take nearly 4 years to pay off and cost you an additional $397 in interest if you make only the minimum monthly payment (roughly $30), assuming an 18 percent interest rate, according to CreditKarma’s credit card interest calculator.

Once you arrive at a realistic budget for holiday spending, never waver, no matter how enticing those layaway deals may be.

Make a DIY holiday gift list

Perhaps the best way to limit your spending during the holiday season is to plan ahead.

A little time spent brainstorming budget-friendly gift ideas for each person on your list can pare your costs significantly. A premeditated list gives you opportunity to search for sales, but it also mitigates the urge to impulse buy, which is all too common when shoppers wait until the last minute.

Carefully considering your gift choices also allows time for do-it-yourself projects, like giving a framed photo or personalized recipe book that costs much less, but can mean so much more. (Related: Low-cost gift ideas)

As you shop, don’t forget to stay organized and save your receipts. If you change your mind on a gift idea later on, return the first item you purchased for a refund. Don’t just let it linger.

Pay with cash

Be aware that using credit cards, which are easy to swipe at the checkout counter or online, may contribute to overspending.

Thus, many financial professionals suggest that those who struggle with debt adopt a policy of paying with cash for discretionary expenses. That’s especially good advice for binge borrowers during the holidays, said Cheng.

By avoiding future interest charges, and possible late fees, you also liberate your disposable income to fund other goals, such as increasing your retirement contribution, saving for a down payment on a home, or paying for a bucket-list vacation. (Related: Budget essentials)

You can also potentially use your savings to build up cash reserves throughout the year so you can pay for next year’s holiday shopping without going into debt.

It’s fun to give gifts during the holiday season, but don’t get in over your head.

By setting limits, planning ahead, and paying with cash, you can put financial worries behind you and focus on what matters most this time of year — spending time with those we love.

Since 1851, MassMutual has been focused on helping people secure their financial future and protect the ones they love. That mission is why we have over 7,500 financial professionals to assist you on your journey through insurance, investing, retirement planning, estate management, and more. You can find a MassMutual professional with this tool or you can let us know you’d like to talk to one and we’ll have one of our financial professionals can contact you.

Discover more from MassMutual…

Managing debt in a balanced way

Good debt vs. bad: Keeping it in check

Need a financial professional? Find one here

This article was originally published in December 2021. It has been updated.

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Lending Tree,“ Average Holiday Debt Nears $1,550, Highest in LendingTree Survey’s 8- Year History,” Dec. 27, 2022.

NerdWallet, “2023 Holiday Shopping Report,” Oct. 3, 2023

3 MassMutual, "Not so Merry and Bright: MassMutual Quarterly Survey Finds Americans' Confidence in their Financial Futures Low ahead of Festive Season," Dec. 5, 2023.

Gallup, “Holiday Shoppers Poised to Spend Modestly This Season,” Nov. 1, 2023.

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The information provided is not written or intended as specific tax or legal advice. MassMutual and its subsidiaries, employees, and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of MassMutual.