‘Tis the season to spend but is your wallet ready? To us here at MoneyKey, the signs are clear: the holidays are on their way, and with them comes the temptation to overspend.
It’s hard to resist. The same voice that convinces you to pile on seconds at dinnertime and refill your cup of mulled wine tells you to keep on shopping.
But listening to that festive devil on your shoulder has its consequences. Just as you might wake up sporting a spare tire around your midsection, you may end up shouldering holiday debt if you spend too much.
What is Holiday Debt?
Debt is any money you owe to a friend, a family member, or a financial institution.
Holiday debt is no different; it just puts a festive spin on the money you borrow.
It can include personal loans, online lines of credit, and credit cards you take out specifically to help pay for gifts, goodies, and other seasonal delights.
All too easily, credit can become a crutch during the holidays. It fills in the gaps of your spending plan, so you can stock up on gifts, food, and decorations.
But taking out a personal loan or a line of credit to afford the festivities only puts off the inevitable. Eventually, you’ll have to pay back what you owe, and this time, with interest and any other applicable charges.
As a general rule, never bank on something like a personal installment loan to help you make merry. It’s just not that kind of product; installment loans and other cash advances are designed for unexpected emergency expenses only.
Avoid Debt with These Holiday Spending Tips
The season has the power to turn any Scrooge into a generous spendthrift. But with the right plan, avoiding holiday debt is possible. Here are four tips to help you rein in the holiday spirit this year.
Holiday Spending Tip #1: Set a Budget
When it comes to making the season bright, a budget is as every bit as important as a turkey and some mistletoe. This tool helps you know how you can set practical financial boundaries, so you may avoid taking on holiday debt.
You may also tap into any savings you’ve set aside throughout the year for this purpose. But think twice about drawing cash from your emergency fund.
Like an installment loan, for example, an emergency fund is there to help you cover unexpected expenses and repairs. If you rely on it to buy gifts, you may not have the money you need when disaster strikes.
Holiday Spending Tip #2: Manage Your Expectations
Setting a budget is the easy part; the hard part is sticking to it. But the really challenging thing about it all? Trying to follow a spending plan without first scaling back your expectations.
With visions of gifts overflowing and feasts with all the fixings, you may be disappointed when the reality of your shoestring holiday comes crashing down.
When you’re disappointed like this, something has to give, and all too often it’s your resolve to stick with your budget.
Acknowledge the fact that you won’t be able to pull out all the stops this year but don’t dwell too long on what you can’t have. Focus instead on what you can afford and try to keep positive.
Set aside some time with your family to talk about your priorities and learn what traditions are must-haves and which ones aren’t as important.
Holiday Spending Tip #3: Trim the Fat
Still unhappy with your spending limit? With online loans ruled out as a way to stretch your budget, you’ll need to look for alternative ways to drum up some money.
One way is by trimming the fat from your budget. When you cut down on spending in other areas of your budget, you may free up more cash for the holidays.
Ask yourself the hard questions, like:
- Are there any subscription services that you’re paying for but don’t really need?
- Is it absolutely necessary to keep cable when you only watch shows and movies through streaming services?
- Do you really need to get takeout three times a week or can you cut that number to one?
It may be hard to ignore fun expenses in the lead up to the holidays, but your sacrifices now mean you may not have to miss out on the festivities later.
Holiday Spending Tip #4: Use Credit Cards Carefully
Our first tip is an important one, but it doesn’t mean all credit belongs on the naughty list.
There may be an exception involving the plastic in your wallet, as long as you only spend what you can afford to pay back, in full, by or before the due date.
When used responsibly, a credit card may be the elf to your Santa for the following three reasons:
1. Purchase Protection
The most wonderful time of the year may not always live up to its reputation. Sometimes, things can go wrong, and it’s nice knowing your credit card has your back in emergencies.
The average credit card comes with something called purchase protection, which is a kind of insurance on the items you charge to the account[1].
Let’s say the new video game console that you ordered for the kids arrives damaged. Or, maybe the game you bought to go with it winds up lost in the mail, or it gets stolen from where it was left on your front porch.
If the delivery service or store you bought gifts from leaves you in the lurch, this protection may help you receive a refund or a replacement.
2. Liability
Another benefit of using your card this winter comes in the form of fraud protection.
If a cyber thief uses your credit card to do their own holiday shopping, liability saves you from footing the bill.
Certain credit card companies have zero-liability clauses, which means you won’t be responsible for any fraudulent transactions.
If you have a card with another company, check to see what your account offers. By law, no company can charge more than $50 — even if your thief maxed out your card[2].
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3. Benefits
Think you have to flash the legendary black card to cash in on benefits? Although this invite-only account may have one of the best reward systems in place, you don’t need to pay a massive annual fee to reap rewards of your own.
Even basic cards with no annual fees may come with cash back, shopping rewards, and other perks. Check your account to see what you get.
If you’ve been swiping your card regularly throughout the year, you may have a lot more points than you realize. Organize your holidays around these rewards to take some of the sting out of the bill.
Remember to Charge What You Can Afford
While these benefits may give you a competitive edge this holiday, they aren’t an excuse to overspend. If you find you must use a credit card, do so by making purchases you can afford and paying them off in full right away.
By paying your bills in full before the due date, you may decrease your interest charges. You may also reduce your balance and increase your available credit.
Holiday Spending Tip #5: Shop Early
Timing is everything, as they say, and this is particularly true around the holidays. Getting a jump-start on your shopping means you may avoid paying more as stock runs low or shipping prices rise.
A little forward thinking may also help you spread out the cost of the festivities.
Let’s say you have a holiday budget of $300. If you start a couple of months early, you can space out your shopping.
By spending $20 here and $45 there, your shopping ties up less of each paycheck due between now and the holidays. This technique can give you more wiggle room to cover your usual bills and obligations.
Now imagine you forget to do your shopping, and you’re stuck fighting over the last remaining stock the week before your gift exchange. Few people can drop all $300 in one paycheck and not feel the pressure.
You can still be proactive even if you prefer last-minute shopping. Start squirreling away a bit of cash in your monthly budget for the holidays. While you may not tap into these savings until the end of the year, you’ll avoid the pressure of drumming up this cash all at once.
Don’t Forget about Your Cybersecurity
Each year, online shoppers grow in number, and we may know why. Just like researching online for a cash loan is easier than comparing rates in-person, shopping online for gifts can be much more convenient than going to the mall. You can navigate online deals from the comfort of your home, where holiday soundtracks, snacks, and presentable clothing are optional.
In many ways, online shopping simplifies the holidays, but only if you browse safely from your screen.
Each year, cyber thieves on the prowl for financial information get better at stealing personal data. Don’t make it any easier for them to hack your accounts.
Whether you use a desktop, a tablet, or a smartphone, make sure you follow security tips for online shopping:
Safe Online Shopping Tip #1: Visit Trusted Vendors
Buying everything you want at the prices you need is tricky. Between a limited budget and a long list, you might leave behind expensive household brands to chase down cheaper prices advertised with unfamiliar stores.
While this may be a great way to find an ultra-low price you can’t get anywhere else, it may also be an easy way to get scammed.
If you end up on a site you’ve never heard of before, do some research before you proceed to the checkout. You’ll want to check for things like:
- Past customer reviews: You can tell a lot about a company by what previous customers have said. Check their reviews to see if their products and services hold up to scrutiny.
- Privacy policy: With a few clicks of your mouse, or taps of your finger, you should be able to find a company’s privacy or security policy. This section tells you how they intend to collect, use, store, and dispose of your personal information.
- Return policy: Another important page is their return policy, which tells you how they handle refunds or exchanges.
- Contact information: Anyone can set up an email address, but only legit businesses have their correct domain name. It’s likely a scam if you see something like [email protected] instead of [email protected].
If it all checks out, there’s a high chance you’ve found a reputable site and are safe to click “buy”. But if one or more of these features are missing, consider it a red flag.
As a good rule of thumb, err on the side of caution. No purchase is worth risking your online security for.
Safe Online Shopping Tip #2: Shop with Secured Wi-Fi
Although you may feel at home in a cozy corner of a café, sipping on a gingerbread latte, hidden dangers lurk overhead. That free Wi-Fi you end up using may be a security risk.
Why? Because it’s unsecured and shared by every other customer in the coffee shop.
It doesn’t take much to hijack these public connections. Someone with a bit of computer know-how can eavesdrop on your shopping session and see everything from your login credentials to your credit card numbers.
There’s no harm in taking advantage of this Wi-Fi to help you locate stores or plan a kids’ birthday party on a budget. But you should be cautious of sharing financial information on these networks.
If someone hacks it, they’re as good as looking over your shoulder as you punch in your personal information.
The next time you get a hankering to shop, transfer money, or check on your online cash loan while you’re getting a latte, take your cup to go. Bring it home to where your router is protected against prying eyes.
Safe Online Shopping Tip #3: Watch Your Bank Statements
Following the tips above may save you from accidentally exposing your personal information while holiday shopping.
Unfortunately, there may be no way to prevent your information from falling into the wrong hands. Large-scale data breaches targeting big financial companies may compromise your data no matter what you do.
When it comes to high-profile hacks, your best course of action is surveillance. Watch your accounts regularly to see if unusual purchases or advances show up.
If you see anything you can’t explain in your statements, contact your bank or credit card company right away. Inaccuracies may be simple mistakes, or they could mean you’ve been hacked.
If you believe your identity has been stolen, check your credit report and look for suspicious activity on your file. Things like new applications you didn’t file or cash loans you didn’t open are warning signs.
Dispute these errors immediately and consider getting a credit freeze[3]. While this freeze is in place, the identity thief won’t be able to take out new cash loans in your name.
Getting the ball rolling on this process may take some time, but the faster you act, the easier you’ll be able to undo the damages done by fraud.
Be Prepared for Holiday Season Spending
Overspending during the holidays may seem like a given when you’re on a tight budget, but it doesn’t have to be that way. With the right plan, you may live within your means and avoid kicking off the new year with a holiday debt hangover.
Remember these tips before you make your list and check it twice. They may help you celebrate the holidays on a budget without feeling like a Grinch.
Happy holidays and all the best for 2021.
[1] https://www.nerdwallet.com/blog/credit-card-benefits/purchase-protection-credit-cards-cover-belongings/
[2] https://www.consumerfinance.gov/ask-cfpb/am-i-responsible-for-unauthorized-charges-if-my-credit-cards-are-lost-or-stolen-en-29/
[3] https://www.consumer.ftc.gov/articles/0497-credit-freeze-faqs
Posted in: Holiday Tips
Disclaimer: This article provides general information only and does not constitute financial, legal or other professional advice. For full details, see MoneyKey's Terms of Use.
