The holidays are the season for overindulgence. More than feasting or drinking, Americans overindulge in shopping, spending and gift-giving this time of year.
Then comes the season for overextended consumers and overdue credit card bills, the debt-worries.
Gift-giving for Christmas, Hannukkah or other winter holidays adds more than $1,000 to the average American’s expenses. Yet experts say with a little planning, holiday buying does not have to bust budgets or crowd credit card statements in January and February.
One of the things that gets us in trouble during the holidays is that it’s easy to get caught up in the hype, says Gail Buckner, a senior vice president at Putnam Investments who advises women on money and financial management.
Instead of heading to the stores with a pocket full of plastic and no plan or ideas on what gifts to buy, financial planners suggest you start at home to create your shopping list and spending plan.
List everyone for whom you expect to buy a holiday gift. Then look it over again and consider crossing off a name or two. Some families believe the holidays belong to children, and so they focus their gifts on the little ones. Others draw names or set dollar limits on how much they’ll spend on each family member.
However you arrange the list, you will want to budget a dollar amount for each person on it. Mom may merit a $50 gift, while your Uncle Harry’s will top out at $20.
Laurie Cosentino of Westmont keeps a mental holiday budget and has for years. “I’ve always kept myself to a dollar limit on each person,” she says. The amounts vary from $100 or so for her husband to $5 for friends at work and $15 to $20 for nieces and nephews.
The nieces and nephews used to receive more, around $25 apiece, but their numbers have risen just as Cosentino’s salary has declined. Cosentino cut her schedule from full-time to three days a week at a Chicago mortgage company after adopting their 16-month-old son Alex last fall.
But she makes the money go further by buying many things on sale or at craft shows and starting early, by the first of November.
Her strategy fits into our second piece of expert advice: Shop early, shop smart and seek sales.
“A lot of damage is done the two weeks before Christmas,” said Deborah Conrad, manager of community education for Consumer Credit Counciling Centers Service of Michigan. That’s because shoppers know they must buy gifts for many people. So they panic and purchase more costly or less appropriate items just to get the shopping done.
Retail analysts expect stores to offer many promotions this year to encourage spending. So watch for special discounts and incentives throughout the season, and especially in stores where business is slow.
But some retailers want to jump-start the holidays and are giving shoppers reasons to buy now instead of procrastinating. Some catalog companies, for example, are offering free shipping for those who buy early. And Toys “R” Us and a few other chains sent out early-bird coupons.
Shopping early has other advantages: You could spread out your spending over two or three months, instead of bunching up all the bills in December and January. And you are more likely to find what you want, instead of discovering that the super software program has sold out the week before Christmas.
Conrad suggests that if the timing of the holidays looks particularly horrible this year, reschedule them. Anyone who was recently laid off, downsized or otherwise put out of work may choose to celebrate Christmas in July when they have a regular paycheck again. Families and friends still can get together for a holiday celebration in December, but postpone gift-giving for six months or even a year.
Those who can’t wait but who also can’t afford to spend a lot should consider creative or handmade gifts, from your kitchen, computer or sewing machine. Such gifts–whether a plate of cookies, a hand-knit sweater, a personalized calendar or a 6-year-old’s holiday decorations–often mean more than anything store bought, Conrad said.
Financial planners and other experts offer these other suggestions for keeping the holidays from putting you in hock:
When you’re budgeting for the holidays, be sure to figure in some cash for entertainment and extra eggnog, chocolates and other delectibles. Most retailers sell holiday food at very low prices, but that may not offset extra spending for parties and potlucks.
Give up plastic. Instead, use cash or debit cards, which won’t come back to haunt you in January. More than two-thirds of Americans carry balances on their credit cards and don’t need to add even more to them, says Ruth Susswein, executive director of Bankcard Holders of America, a national non-profit organization. If you cannot afford to pay for all your purchases now, use credit cards for only half of the gift-buying, she says.
If you must charge it, cut out the high-interest cards. This is the perfect time to review your credit card accounts and call to ask for a better rate, says Dorothy Bossung, president of Bossung Investments & Financial Planning Inc. in suburban Detroit. Credit card companies are most likely to reduce the rate if you have been a good customer–one who carries a balance but pays on time.
Susswein suggests using the low, low teaser rates that many credit-card companies offer initially as a come-on. Other experts say to be sure to check the rate on retailers’ cards and special offers. Often their rates are higher than most Visas or Mastercards and their terms not as favorable.
If you’re going to pay partly with plastic, check your credit limits and make sure you stay within them. Susswein warns that some issuers charge penalty rates of 10 percent or more above their usual rates if you go over your credit limit. Once the penalty rate is put into effect, it stays sky high for 6 to 18 months.
