Do These 3 Things to Avoid Holiday Debt This Year

Guy in red sweater stressing over bills while surrounded by Christmas gifts and a Christmas tree.

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Holiday debt can damage your finances. Here’s how to steer clear of it.

Holiday debt can damage your finances. Here’s how to steer clear of it. 

The holidays can be a wonderful chance to enjoy time with friends and family, but if you’re not careful, you could wind up racking up a boatload of debt by the time they’re done. This especially holds true if you’re hosting multiple gatherings or traveling a lot during what’s often the priciest time of the year. If you’d rather escape the holidays without a disastrous credit card balance, here are a few key steps you must take.

1. Set a budget

If you’re eager to avoid debt during the holidays, it’s crucial that you set a cap on what you spend. And to this end, you'll need a budget.

To set one up, first figure out how much money you’ll have to work with from your incoming paychecks. For example, if you bring home $3,000 a month and spend $2,400 of that on essentials, that gives you $600 a month to use for the holidays, multiplied by a couple of months. Next, figure out how much money you can afford to withdraw from savings. If you’re sitting on a healthy sum, you may feel comfortable removing a few hundred dollars to pay for gifts, parties, or decor.

As soon as you figure out how much cash you’ll have at your disposal, order your various holiday spending categories -- like travel, gifts, entertaining, and decorations -- by priority, and set a limit for each. Imagine you have $1,500 total to work with, and your most pressing priority is visiting family for the holidays, followed by gift-giving. If a ticket back home costs $400, buy that first. Then, identify the people you want to be the most generous with gift-wise, and buy things for them before spending money on other things. The key, however, is to work backward from your total spending cap -- in this case $1,500 -- rather than first spending money and then seeing what total you arrive at.

2. Boost your earnings ahead of time

You might set up a holiday budget only to realize it doesn’t get you far. If that’s the case, don’t just resign yourself to overspending. Instead, boost your earnings ahead of the holidays so that you have more money to work with.

You have several options in this regard. First, you can ask around and see if local retailers or businesses are in need of seasonal help. A good time to line up this sort of temporary work is generally late October or early to mid-November, before the holidays start.

If you’d rather not be locked into a set schedule, see about carving out an independent side hustle. You can try getting paid to do graphic design work on your own time, provide child care services on evenings and weekends, become a tutor, or turn your crafting hobby into an income source.

3. Maximize credit card rewards

The right credit card could make the holidays more affordable this year. If you have a great credit score, apply for a card with a generous rewards policy, including a substantial sign-up bonus. That sign-up bonus will give you a lump sum of cash for purchases made shortly after opening that card. At the same time, capitalize on existing rewards you’ve already accrued. If you need to travel, cash in your air miles to avoid paying a premium for your own fare. And if you have a long list of gifts that need to be purchased, use your cash back to pay for them, or use your rewards to buy gift cards that serve the same purpose.

Racking up debt this holiday season could set the stage for a stressful 2020. So don’t let that happen. Instead, stick to a budget, add to your earnings, and be savvy with credit card rewards. With any luck, you’ll escape the holidays without harming your finances.

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