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A 4-Step Guide to Debt-Free Holiday Gift Giving

Yeah, I know. Your Halloween pumpkins haven't even been on the porch long enough for the squirrels to gnaw into them, and here I am writing about holiday shopping.

At the risk of becoming part of the problem, I humbly submit that there's a very good reason to think about tinsel and tidings this early. Actually, there are 14-and-a-half very good reasons.

That's 14.5% -- the nationwide average variable interest rate on a credit card, according to Bankrate.com. And plenty of issuers clock in well above that average. Bankrate points out that US Bancorp (NYSE: USB  ) and Wachovia (NYSE: WB  ) currently charge 17.74% on some of their cards, with Wells Fargo (NYSE: WFC  ) and JPMorgan Chase (NYSE: JPM  ) at similar levels.

So ignore at your peril the imminent recurrence of incessant holiday carols, charity drives, and regrettable office parties. If you're unprepared when the season of good cheer comes around, you might need to mark up the cost of your gifts with those "bah, humbug" finance charges.

Look at the calendar before you dismiss the thought. There are about six weeks until Hanukkah, and nine weeks until Christmas. That's not a lot of time. A little attention to your holiday budget today may allow you to end the year with your finances in the black instead of red (and green). Here's how.

Reality check. First, pull out last year's credit card bills or bank statements, and tally up the amount you spent on holiday gifts. Does the number surprise you? Stockings full of $25 trinkets add up to big bills. Ask yourself if you can afford that much generosity this year. If you've just paid off last year's bills, the answer is probably no. Scale back last year's spending, if necessary, to an amount that's more affordable.

Check again. Second, make a list of everyone for whom you plan to buy a gift this year. (Remember to include yourself if you're prone to buying irresistible items for yourself as you shop.) Estimate a realistic amount you expect to spend on each person. Tally that up. Does this number come even remotely close to the budget you estimated in your first reality check? If not, it's time to reconcile the schizophrenic halves of your holiday brain. Tell the "budget" lobe to start networking with the "shopping" lobe and settle on a figure that makes them and you happy.

Play Scrooge. Third, as you take another look at your list of planned gifts, repeat to yourself, over and over: "It's the thought that counts. ... It's the thought that counts. ..." Scratch off as many token gifts as you can. You know the ones I mean -- the tree ornaments and collectible tins that you buy for everyone from your manicurist to the kids' scout leaders. Don't ignore these important people during the holidays, but consider whether a well-penned note of appreciation or homemade cookies might not only better express the sentiment, but also cut your holiday costs.

Divide and conquer. Lastly, commit to your goal. Divide your holiday budget by the number of weeks left until the big celebration (six for Hanukkah and nine for Christmas). Set aside that much money every week until the holidays.

If you want to take the failsafe no-cheating approach, put the amount in cash in an envelope, and take only that money to the mall. Leave your credit cards at home. Otherwise, stash the money in a savings account, or make a new budget line in your mental accounting. Do whatever you need to do to make sure that money's available for holiday gifts when you need it.

Now, sit back and fantasize about how great you'll feel sipping champagne on New Year's Eve knowing that you won't dread January's bills.

Read on for more holiday budget tips on:


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