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Avoiding the Financial Holiday Hangover

As the holiday season approaches, many people are filled with a sense of anticipation, excitement, and financial panic. Every year we resolve to not repeat the same spending sprees, yet how many people are STILL paying off those credit card balances? You promised yourself you would pay the debt off within two or three months. Six or eight months later (or more), you're still paying, and those items that seemed like such bargains end up costing you 10 to 20% more than you thought, due to credit card interest. For many of us, this debt pattern is repeated year after year. This year the “holiday hangover” could push many families into financial ruin. NOW is the time to plan for fiscal comfort.

While there are times when incurring credit card debt makes sense, holiday gift-buying is not one of them. Using credit cards often leads to impulse spending, overspending, and increased debt. A better approach is to save small amounts of money throughout the year in a special holiday gift fund, make a list of all the people you'd like to give gifts to and how much you can afford to spend on each one, and pay cash. When the cash is gone, you're done shopping.

If saving money throughout the year seems difficult, join an old-fashioned Holiday Savings Club, still offered by smaller community banks and credit unions. You can put a manageable amount away each pay period, often deducted automatically from your paycheck. The account usually earns interest at the regular savings account rate. In October, November, or December, the money gets transferred to your regular checking account and you're ready to go shopping!

Keep a Lid on Holiday Spending

Here are four simple steps to help you stay out of debt this holiday season and avoid that financial “holiday hangover.”

  1. Set spending limits--Look at your monthly budget and figure out how much you can realistically afford to set aside towards holiday gift giving, without going into debt. Your intentions may be good, but the reality is that most people have a depressing amount of debt after the holidays and are not able to pay it off in as timely a manner as they had hoped.
  2. Make a list--Follow Santa's example. Make a list of all the people you need or want to buy gifts for, including small gifts for babysitters, teachers, newspaper deliverers, etc. These small gifts can add up and are often the cause of going over your gift budget. Include money you'll spend on holiday cards, postage, holiday parties, decorations, holiday entertainment, etc.
  3. Set a limit--Decide how much you will spend on each person on your gift list, then add everything up and make sure it doesn't exceed your overall spending limit. Try to allow a cushion for unexpected items or price fluctuations.
  4. Decide where to shop--As important as deciding what you're going to buy is deciding where you're going to buy it. If you don't wait until the last minute, you'll have time to comparison shop. Prices fluctuate significantly from store to store and from one month to another. Stores start cutting prices 10 to 25% on holiday items like decorations, gifts, and winter clothing the week before Thanksgiving. As Christmas approaches, some items are marked down as much as 40% but selections are limited. You'll need to decide whether price or selection is more important to you and time your shopping accordingly.

Follow these simple steps and you'll avoid the nagging feeling that you've overspent on Christmas or other holiday gifts. You'll also avoid the struggle to pay off the credit card bills for months to come. Instead you'll feel in control and free of the dreaded financial “holiday hangover.”