It is easy to hand the store clerk your credit card when doing your holiday shopping, because it is probably done in the spirit of being generous. However, when the holiday bills start rolling in, it is not the sweet spirit of generosity that hits you, but rather the bitterness of buyer’s remorse that can overwhelm you.
Make a List
Decide before you head for the mall exactly who you plan on buying a gift for and set a budget for each person on your list.
Check It Twice
Total the amount you will spend on all holiday gifts. While $20 here or $50 there may not seem like too much to spend, when you look at the total amount spent for the twenty people on your list ($20 x 20 people = $400 / $50 x 20 people = $1,000) you get a better picture of how this affects your total budget. Perhaps there are ways to reduce your list or cut back on expenses. Maybe Grandpa doesn’t really need that holiday coffee mug after all!
Understand the Cost of Debt
For example, if you plan on charging $1,500 this holiday season and your credit card carries a 14% interest rate and requires that 3% of the balance be repaid monthly, you will find that it takes you three year(s) and seven months to pay off this credit card—and you will wind up paying $410 in interest!
In addition to a list and a budget, you can also choose to shop with cash or debit cards, which will eliminate the credit card bills later. Because the pleasure of the spending transaction and the pain of the payment transaction are one in the same (unlike a credit card), the reality of money spent will be immediate. Studies show that folks spend less when using cash versus credit.
Avoiding a financial holiday headache starts with awareness. Knowing exactly who you need to buy for and how much you have to spend will help guide you during the holidays. The joy of the season does not need to lead to a fiscal nightmare in the New Year.