How to Have a Debt-Free Christmas

Holiday shopping doesn't have to leave you broke.

It’s beginning to look a lot like “Debt-mas.” Okay, that’s a pretty bad spin on a classic holiday song. But, the truth is, it’s the time of year when many Americans take on a lot of debt.

Consider these figures: The average holiday debt in 2015 was $986, according to a survey by MagnifyMoney. Consumers owed even more after the 2016 holiday shopping season — $1,003.

You don’t have to accept debt as a fact of Christmas, though. You can save money during the holidays and avoid going into debt by following these six tips.

Create a Budget for the Holidays

Only about half of consumers create a budget for the holidays, according to a TD Bank survey. Having a budget, though, is the key to staying out of debt, said financial coach Jessi Fearon.

“I always suggest that you sit down and make a list of everyone that you want to purchase for — including friends or co-workers — and make a list of gift items,” she said. “After that, go through your budget and determine how much you have to spend on gifts this year and then list out how much you plan to spend for each person.”

The trick then is following that budget. The TD Bank survey found that only 70 percent of consumers who make a holiday budget stick to it. The key, Fearon said, is to take your gift list and budget with you while you do your holiday shopping. “If you stick to your list, you’ll stick to your budget,” she said.

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Limit the Gifts You Give

Christmas is about giving. “Gift giving is great. We all love it,” said credit expert Jeanne Kelly. “But we don’t want to go into debt over it.”

One way she avoids overspending is by putting a limit on the number of gifts she and her husband exchange — and the dollar amount they spend on those gifts. Kelly said having a small budget actually forces them to get more creative with the gifts they give. “You put more thought into it,” she said.

Fearon agreed that limiting the gifts you give can help you avoid going into debt. She limits the Christmas gifts she gives to her kids to just four each. She and her husband give each other only one gift. And they give the grandparents just one gift — typically a photo calendar with pictures of her kids. Her children also make something handmade for each grandparent — “which is so much fun,” she said.

“Other than that, we don’t really buy anything else for anyone else unless we feel there’s a need to — like one year we heard about a neighbor that had lost their job and they needed a few things, so we bought something for them,” Fearon said.

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Leave Home Without Your Credit Card

You might remember the old American Express ad that told consumers not to leave home without their Amex cards. Kelly offers the opposite advice to consumers who want to avoid holiday debt: leave home without your credit cards.

“Use cash so you don’t rack up debt,” she said. That means you’ll need to do some careful planning to figure out how much you can afford to spend for each person on your holiday list, for holiday meals and any other seasonal expenses. You can divvy up the cash you need for each spending category and put it in envelopes. Then take your holiday shopping lists with you, so you buy only what you need and have enough cash to cover it.

You might not be able to avoid using credit cards in all situations, though. For example, you might want to charge online purchases to credit cards rather than your debit card to protect your bank account if your card number is accessed by hackers. “But only use [your credit card] for what you know you can pay back,” Kelly said.

And don’t wait for your monthly credit card bill to pay off what you owe. She recommended logging onto your credit card account after you make purchases. “The next day when the charge shows up, pay it off,” she said.

Make Extra Cash to Buy Holiday Gifts

If you think you don’t have enough room in your budget to pay for holiday gifts, you can avoid relying on credit cards. “My top tip for having a debt-free Christmas is to find ways to make extra money,” said Michelle Schroeder-Gardner, creator of the blog Making Sense of Cents.

“There are tons of ways to make extra money, such as finding a temporary part-time job, working overtime at your current job, selling items around your home on eBay, Craigslist, Facebook, etc. and more,” she said, adding that you can put the cash toward your holiday spending.

Some of the best side jobs for extra holiday cash are seasonal positions. “Given the tight labor market, job seekers have a great opportunity to take on additional hours and make extra money over the holidays,” said Peter Harrison, CEO of Snagajob.

To stand out and get hired, be sure to follow up on applications with a call, email or visit to the company. “We found the vast majority of seasonal employers appreciate it when job seekers show their interest,” Harrison said. “Be sure to also bring a smile and positive attitude to the interview, since it’s one of the most important characteristics hiring managers say they look for.”

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Give Memories, Not Items

You can avoid holiday overspending by eliminating gift-giving. You might feel like your friends and family will think you’re Scrooge if you propose skipping the annual gift exchange, but you’ll likely find that they breathe a sigh of relief.

A survey conducted for SunTrust Banks found that 69 percent of Americans would skip exchanging gifts if their friends and family agreed to it. If they didn’t have to buy gifts, 37 percent said they’d use that money for paying off debt.

Keep in mind that it’s not the gifts that people remember most about the holidays. Kelly said that when she asks credit repair clients what their favorite gift they received as a child was, they typically share a memory rather than a gift.

She has a friend who would give her children a memory every year for Christmas. She would write down something they could do together and wrap it. “The kids would always run for that gift first,” Kelly said. “When [you] look back, what are your favorite gifts? Maybe they’re not the material things.”

Start Planning for Next Christmas Now

If you want a debt-free Christmas, you need to plan all year for it, Fearon said. “So, even though it might be too late to implement this for this year’s Christmas, it’s not too late to start planning for next year.”

Fearon recommended saving money for holiday shopping in an account dedicated solely to Christmas costs. Go through your monthly budget and determine how much you can afford to set aside in that account each week or paycheck. Then set up an auto draft to that “Christmas” savings account.

“This will help you know exactly how much money you have to spend for Christmas instead of trying to guess or struggling to pay for Christmas with a tight monthly budget,” she said.

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