Though the holiday season may not officially be upon us just yet, consumers are already flocking to the stores in the hopes of snagging great deals on holiday gifts. But nice as it may be to shower loved ones with presents, all of that shopping comes at a cost.

Will the holidays wreck your finances?

The average U.S. consumer spends $1,226 on holiday gifts, reports web hosting platform Cloudways. Furthermore, that number doubles in households with incomes of $100,000 or more. But seeing as how most Americans have under $1,000 in savings, it's clear that many are looking at taking on debt in an effort to be generous.

That's problematic, because when you rack up debt, you automatically sign up to pay interest on it. In the case of credit card debt, you're paying interest to your credit card issuer. If you finance a purchase directly through a store, you're paying interest to that store, or its financing underwriter. And while it's worth noting that some retailers offer no-interest financing, that's usually only for a limited period of time, and for larger-ticket items, like furniture. Chances are, you won't be able to pay off a series of $30 or $40 purchases over time at 0% interest.

Pile of wrapped boxes


Even if you don't need to incur debt in the course of buying holiday gifts, it still pays to question whether you should be spending anywhere in the ballpark of $1,226 if you have other important financial goals to meet. Imagine you're sitting on a mere $600 in emergency savings. That's well below the recommended minimum of three months' worth of living expenses, in which case you're better off pumping that money into your emergency fund.

Spending less on holiday gifts could also help you better meet your retirement savings goals. Say you haven't yet maxed out your IRA or 401(k) this year. If you were to put that $1,226, or part of it, into your retirement plan, you'd get a lot closer. And you may be surprised at how impactful that single contribution could be over time.

Imagine that instead of spending $1,226 on gifts for the holidays this year, you cut that amount in half and stick the remaining $613 in an IRA or 401(k) whose investments earn an average yearly 7% return (that's more than doable with a stock-focused investment strategy). Over 30 years, that single $613 contribution could grow to $4,666. That's a lot of money to potentially give up during your senior years.

Spending a lower amount on holiday gifts could also free up more money to pay off existing debt, whether it's of the credit card, auto loan, or student loan variety. And the sooner you eliminate outstanding debt, the less money you waste on interest.

Force yourself to be frugal

Even though it may be fun to be an avid gift-giver, chances are, you have more important things to do with your money. And if you don't have the funds on hand to spend freely for the holidays, you shouldn't risk debt in the course of making other people happy. You're better off giving cheaper gifts from the heart, and celebrating the fact that you and your loved ones have the opportunity to share in the holidays together.