The holidays are a great time to celebrate with friends, spoil family members with gifts, and rack up loads of debt in the process. Last year, the average American consumer wound up $1,230 in debt, the bulk of which stemmed from credit card charges. But getting into debt is a dangerous move that can not only cost you money, but also prevent you from meeting other important financial goals.

The danger of debt

When you incur debt of any variety, you turn a purchase into a more expensive one by paying interest. And chances are, that extra money could be used for something more pressing.

For example, if you don't have any emergency savings, wasting even $50 on interest means you're an extra $50 away from buying yourself the financial security you ought to have. And if you're shy on retirement savings, avoiding debt will leave you with more money to fund your IRA or 401(k).

Woman seated at desk looking at papers with a concerned expression while a Christmas tree stands in the background


The question is: How do you avoid debt at a time when spending money is pretty much the norm? A lot of it boils down to self-discipline, coupled with short-term sacrifices that can free up more cash than you'd expect.

Cut back on other spending

There are probably things you spend money on most weeks that you can cut back on temporarily. Take a look at your budget to see what they are and commit to avoiding them if making holiday-related purchases is more important to you.

For example, if you dine out weekly to the tune of $40, cooking similar meals at home will likely save you $30 a week based on common restaurant markups. That's an extra $180 coming your way if you curb your restaurant habit between now and year-end. And that's just one expense out of what could be many.

Boost your income

A nice chunk of extra income this month could prove instrumental in helping you avoid debt. You can start by seeing if it's possible to pick up additional shifts at your main job, and if you can't, look into seasonal work.

Many retailers hire extra workers around the holidays, so explore your neighborhood and see what's available. You can also try to land a side hustle that you can do on your own terms and in your own space. That could mean using your web development skills to design websites or writing product reviews for extra cash.

Change your mindset

A big reason why so many people wind up in debt during the holidays boils down to peer pressure. You don't want to be the only person in your family or circle of friends who shows up without a huge pile of gifts, so you may decide to buy things you can't afford and figure it out later. Well, that's a mistake you'll regret very quickly after the fact, so instead of letting yourself wreck your finances in an attempt to please or keep up with others, make your own rules.

Decide what's important to you this holiday season and focus on that. If seeing loved ones is your utmost priority, go ahead and spring for a plane ticket, but don't be afraid to show up empty-handed. You can explain that you just can't afford to buy gifts this year but you're happy to be a part of whatever celebrations ensue. Chances are, no one will argue with that, and they won't even mind.

It's easy to fall victim to the holiday debt trap, but if you manage to avoid it, you'll start out the new year in a healthier place financially. And that'll be something worth celebrating as much as the holidays themselves.