The Ultimate Holiday Debt Survival Guide for 2017

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Millions of Americans have an overwhelming amount of debt, and during the holidays, many consumers spend more than they have. Don’t fall victim to overspending and accruing debt this holiday season. You can still love and celebrate the holiday season without overspending on holiday gifts, food, decorations, lights, and entertaining. After all, the holidays are a time to gather with friends and family and to be grateful for what you have!

We compiled the ultimate holiday survival guide to get you through this season of giving without going into debt. Here are five tips to help you spend wisely and protect your finances.

1. Create a Holiday Budget

You might be tired of hearing about budgeting, but if you’re serious about not overspending this holiday season, you should make a holiday budget. It’s important to be realistic—don’t make guesses if you can avoid it. Look back on how much you spent last year to guide you as you create your budget, and see where you could cut back.

The key to staying on budget is proper organization so you can have a holiday season that’s free of financial stress. When it comes to gift giving, be sure to make a list and check it twice. Don’t feel pressured to give to friends or extended family if your budget doesn’t allow it.

2. Use Cash

It can be discouraging to start off the New Year already behind on the eight ball in money matters. To avoid a financial hangover in January, you may want to consider using cash or a debit card for your holiday purchases—instead of a credit card. By having cash on hand when holiday shopping, you will be less likely to go over budget. You’ll be forced to spend only what you have available as opposed to a large credit line.

If you do plan to use a credit card, remember that you’ll have to pay interest on your purchases if you don’t pay the entire balance in full. Be sure to add due dates to your calendar for each of your credit cards and schedule a reminder on your phone. Overdue payments can hurt your credit score and push you further into debt with late fees.

Additionally, learn to prioritize your bills. Pay off the card with the highest interest rate first—otherwise you’ll pay more over time. You should also consider dropping any retail credit cards after you’ve paid them off. These tend to have the highest interest rates and limited benefits.

3. Plan Ahead

Last-minute shopping is stressful, and it can also be costly. If you’re in a rush, you’re more likely to forget about your budget and instead grab what is most convenient. Taking the time to research the best deals, sales, and prices can save you time and money. Try spreading your holiday gift purchases throughout the year, in place of doing it all in December.

4. Get Creative

If your budget doesn’t allow you to buy for everyone you would like to this year, a great alternative is a holiday grab bag. With a grab bag, everyone buys a few small gifts to wrap and throw into a bag or a box, then each participant randomly picks one gift at a time until all the gifts are gone. Anyone who would like to participate should agree to a price that fits into everyone’s budget and how many gifts each person should buy. This is not only frugal but also fun!

If you’d rather stick to traditional gift giving, get creative with it. Try making do-it-yourself projects or crafts—a homemade gift is much more sentimental than a store-bought one anyway. For your children’s teachers or coaches you would like to include in your holiday list, consider gift cards, home-baked goodies, or both combined. Gifts don’t need to be lavish to show someone you appreciate them.

5. Implement Damage Control 

If it’s too late and you’ve already overspent this holiday season or are already in deep credit card debt, don’t panic. There are ways to recover and do damage control after the holiday season is over.

The most important thing of all is committing to paying off your debt. It might be easier to simply continue your regular spending habits and pay the minimum balance when you remember. But giving debt priority, even when it’s an insignificant amount, will do wonders in helping you maintain good financial health.

With all the new items you’ve received during the holiday season, you might have some older things you can sell. Clothes, electronics, and even books could earn you a little extra cash to help pay off your debt. Amazon, eBay, and your local consignment shops or thrift stores are fantastic venues for selling your unwanted stuff.

Take a look at your budget and make sure you set aside enough money each paycheck to make at least double the minimum payment. But if you can manage it, you should aim to pay much more than that. Fine-tune your budget to see where you can cut back so you can make more substantial payments to your credit cards. The sooner you’re out of debt, the sooner you can start putting that money where it really matters.

Don’t let your finances take a major hit this season. Follow these tips to avoid overspending, and keep an eye out for other common holiday pitfalls. By building more frugal shopping habits, you can also improve your credit score. If you’re curious about how your credit’s faring now, take a free look at your credit score through Credit.com.

Image: gilaxia 

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1 in 4 Americans Plan on Racking Up Holiday Debt in 2016, Survey Shows

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In a new survey of 1,147 American adults conducted by MagnifyMoney, more than one in four (26%) Americans said they plan to rack up holiday debt during the 2016 holiday season that will linger more than a month. Among the 26% who will rack up debt, 66% expect they will take three months or more to pay off the debt.

Holiday debt can quickly spiral out of control. MagnifyMoney found the average shopper surveyed who added debt during the 2015 holiday season racked up $1,073.

Using a credit card with average APR of 16% and making monthly minimum payments of around $25, it would take that person more than five years (61 months) to get out of debt, according to MagnifyMoney’s Credit Card Payoff Calculator. Over that time, he or she would pay an additional $496 worth of interest charges.

Nearly one-third (32%) of this year’s survey respondents said they incurred holiday debt during the 2015 shopping season. People who took on holiday debt in the past are much more likely to take on debt this year because they can’t afford to pay cash, our survey found, with 74% saying they will incur debt this year. They are also more likely to feel financially stressed.

Among those respondents who incurred credit debt during the holidays in 2015 , the average shopper added $1,073 of holiday debt. And a staggering 74% said they will likely take on more credit debt again this year.

More debt = more financial stress

More than half (59%) of respondents who took on debt over the holidays in 2015 said they accumulated $500 or more of debt. Among people who said they racked up $500 or more in holiday debt in 2015, MagnifyMoney found greater trends of financial stress and a greater likelihood of incurring additional debt in 2016.

 

Check out our full survey findings below or download a fact sheet here.

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Here are 5 ways to avoid holiday debt traps:

1. Steer clear of store credit cards

The holidays are prime time for retailers selling store credit cards to customers. Customers are often wooed by promises of upfront discounts on purchases, helping them save on their holiday shopping in the short term. But store credit cards notoriously have some of the highest interest rates on the market — an average APR of 23.84% versus 16.28% for regular credit cards. People with poor credit may be saddled with store cards with interest rates as high as 27%.

Store credit cards can also come with onerous deferred interest fees — they may offer no-interest promotions for a certain amount of time. But if you fail to pay off the entire balance by that date, you can be slapped with the entire interest balance in one lump sum.

If you want to get a discount on your purchases and signing up for a store credit card is the only way to get there, just be sure you have enough cash on hand to pay your bill right away. With most discounts only 10% to 20% off, you’ll actually wind up losing whatever you saved if you get slapped with a 20% or higher interest rate later.

2. Make a budget and stick to it

The downfall of most holiday shoppers is that it is incredibly easy to get swept up into the excitement of shopping. Before you know it, your budget is blown, and it isn’t until after the giddiness of the holidays winds down that you realize the extent of the damage. Avoid the holiday debt hangover by creating a budget early and sticking to it no matter what.

3. Exchange ‘Secret Santa’ gifts with family and friends

Secret Santa is a fun and smart way to drastically reduce your holiday gift-giving budget. Ask your siblings or friends to draw names from a hat rather than buying gifts for everyone individually. You can all agree on a price limit so no one feels like they over- or underspent.

Can’t draw names in person? Try a Secret Santa online tool like Secret Santa Generator or DrawNames.com.

4. Get rid of last year’s holiday debt first

The average shopper racked up $1,073 worth of credit card debt last year, our survey found. If you have credit debt left over from last year’s shopping, don’t pile on more debt and continue to let interest accrue. Consider signing up for a 0% APR credit card and making a balance transfer (check out the best ones of the year right here). You’ll buy yourself additional time to pay off last year’s debt, and you’ll improve your credit score in the process.

5. Start saving for next year’s holiday shopping today

If you felt unprepared for holiday shopping this year, it might be because you didn’t have enough time to save up. Going into next year, open a savings account and label it “Holiday Shopping.” Then estimate how much you’ll need to save — $500? $1,000? Divide that number by 10 and set up a direct deposit from your paycheck into that savings account for that amount. For example, if your goal is to save $1,000, you’d need to contribute at least $100 per month for 10 months to reach that goal.

Why only 10 months? That way you can start shopping a bit earlier than December, giving you plenty of time to find the perfect gifts for your loved ones.

The post 1 in 4 Americans Plan on Racking Up Holiday Debt in 2016, Survey Shows appeared first on MagnifyMoney.