Don’t look now, but Christmas is right around the corner. Regardless of the stores you visit, they’re likely full of twinkle lights and Christmas trees. Festivity aside, stores do that for one reason: to get you to spend more money.
Spending for holiday presents is a given for most. If you shop with a budget, this isn’t an issue. Without a budget, it’s easy to end up accruing debt. Exiting the holiday season with added credit card debt may seem harmless, but here’s why it can be very harmful.
Debt is common during the holidays.
Christmas is a major expense for many families. The average family plans to spend just over $1,000 on Christmas gifts in 2018, according to the National Retail Federation. It’s easy to justify such spending as a one-time cost. Without a budget, however, it leads to debt.
In fact, more than two-thirds of parents admit to spending more than they can afford during the holidays. Credit cards are the most common culprit to fund such spending. Again, with a plan, this isn’t an issue. Unfortunately, many people don’t have a plan to repay the spending. Studies show that more than 60% of people plan to take three months to repay the debt — and 16% say they’ll take more than six months. That’s a lot of interest racking up.
Why adding debt is problematic during the holidays.
Adding consumer debt is always a problematic situation, especially if you have no plan to repay the debt. Not only does credit card debt keep you from reaching financial goals, but it also enslaves you to others.
“Your financial health is more important than buying gifts you cannot afford,” says Leslie Tayne, Esq, founder of Tayne Law Group. “If you have a plan to pay it off and it fits in your budget, then it might be justifiable. However, to simply buy and spend to get gifts you cannot afford will create long-term financial and personal issues for yourself.”
This is particularly problematic during the holiday season. Adding debt starts your New Year on a bad foot as it creates a problem you must handle right away. If you already have debt, this puts you further behind in reaching your goals.
It’s easy to forget this when you see a “must buy” gift for a friend or family member. No gift is worth going into debt for, regardless of how much the recipient may like the gift.
What to do if you’ve overspent
You may have already overspent your budget for the holiday season. If so, it’s time to commit to finding a way to repay the indebtedness. A plan is the best way to repay your debt. This may involve cutting back in some places of your budget or finding ways to make extra money.
“If you’ve overspent on holiday gifts, see where there may be other places in your budget you can cut back to make up for it,” Tayne says. “If you’re unable to make it all up this month, consider cutting back for the next few months to get back on track.”
Look for simple things to cut back on and throw the savings at the debt. You may even find you can live without items you cut back on and can use those savings toward other financial goals.
As you repay the debt, consider what you can do to avoid the same situation next year. Look at what you spent this year and divide the amount by 12 to find a monthly average. Consider putting that amount in a savings account each month to fund shopping next year so you can shop guilt-free.
What to tell friends and family
The last thing you want to do is hurt a friend or family member during the holidays. Maybe your overspending in previous years increased expectations for a nicer, more expensive gift. It’s important to communicate your need to reign in future spending.
“Be upfront with them about your gift budget and what you can realistically spend or give for the season,” Tayne advises. “If you’re having trouble paying for gifts or have a large family, suggest a spending limit.”
This may cause a painful conversation, but remember they love you and should want the best for you.
Look for alternative options, such as simply spending time together or other activities you can enjoy together. Again, no present is worth the debt it may cause, so look for ways to give without creating financial burden.
It’s easy to get caught in the spending trap to make the festivities more fun. There’s nothing wrong with giving nice gifts, but those gifts should not add debt to your life. You may think it’s not a problem, but it can result in financial problems for the New Year and beyond.