This article will ... Tell you how much debt the average American incurs during the holidays on gifts, travel, and entertainment. Suggest 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 (34 percent) of all consumers took on debt to pay for holiday gifts, travel, and entertainment, according to a 2024 survey by LendingTree. Roughly two-thirds (67 percent) used credit cards to foot the bill and 20 percent said they were only able to make the minimum monthly payments. Another 22 percent said they expected to take five months or more to pay off what they owe.¹

That can be costly. Carrying a balance on a high interest rate credit card makes it harder to dig out of debt. (Learn more: How higher interest rates may hit consumers)

This year, winter holiday spending is expected to grow by up to 3.5 percent, despite the fact that the shopping period between Thanksgiving and Christmas in 2024 will be five days shorter than in 2023. The bulk of overall retail sales growth is expected to come from online shopping. “We remain optimistic about the pace of economic activity and growth projected in the second half of the year,” said National Retail Federation Chief Economist Jack Kleinhenz. “Household finances are in good shape and an impetus for strong spending heading into the holiday season, though households will spend more cautiously.”

That includes limiting the debt they incur during the holidays by:

Setting a budget.
Planning ahead.
Paying with cash.

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 $1,014 on gifts during the 2024 holiday season, substantially more than their forecast of $923 at the same time last year, according to a recent Gallup poll.² 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 budgeting

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 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 future and protect the ones they love. That purpose is why we have thousands of 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 contact you.

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

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