How to Manage Holiday Spending and Reduce Credit Card Debt

The holiday season is wonderful and fun but it also brings big financial challenges. According to a 2024 Deloitte survey, holiday spending is expected to be $1,638 per American household, a 7% increase from 2023[1]. This is driven by higher-income households and spending on experiences, travel and entertainment. However, the survey also shows a growing divide in holiday spending habits: 26% of shoppers will increase their budgets significantly and 29% will spend less due to inflation and pressures to live.

In this article, we’ll look at different strategies for managing holiday expenses and credit card balances to meet different financial situations and goals.

Pre-Holiday Planning: Setting the Financial Foundation

Create a Holiday Budget

Before the holiday season starts, you need to get your financial house in order and create a full budget, as recommended by the Consumer Financial Protection Bureau (CFPB) and the Federal Reserve in their 2024 holiday spending guide. With the average household planning to spend $1,638 on holiday shopping in 2024[2], you need to plan ahead. Your holiday budget should include:

  1. Gifts: Make a list of all the people you need to buy for and allocate amounts for each. Remember to include smaller gifts for coworkers, service providers or last-minute gifts for unexpected guests.
  2. Decorations: Add in the cost of new ornaments, lights and maybe a Christmas tree or other seasonal decor.
  3. Food and entertainment: Include expenses for holiday meals, hosting parties or attending special events.
  4. Travel expenses: If you’re going to visit family or friends include transportation, lodging and meal costs.
  5. Charitable donations: Allocate a portion of your budget to causes you want to support during the holiday season, especially since more people are turning to charitable giving to help those who are financially struggling[2].

Start Saving Now

If you haven’t started saving for the holidays yet, it’s not too late to put some extra money away and ease the financial stress. The Federal Deposit Insurance Corporation (FDIC) recommends setting up automatic transfers to a savings account to build up funds throughout the year. For example, saving $50 a week can add up to $2,600 a year, which can be a nice buffer for holiday expenses. Even if the holiday is near smaller amounts, it can still make a big impact and reduce the need for credit card debt.

Also, using a high-yield savings account can help your savings grow faster by earning interest and adding a little more to your holiday budget with no extra effort.​

Set Financial Goals

Decide what financial outcomes you want this holiday season. Common goals are:

  • Not to go into debt
  • Pay off existing balances
  • Limit spending to a certain amount
  • Save despite holiday expenses

Having clear goals will guide your spending and keep you on track. Write these down and refer to them often.

2. Smart Shopping Strategies

Take advantage of Sales and Discounts

In 2023, 60% of holiday shoppers used sales or price discounts to save. For 2024 try: Signing up for retailer newsletters to get sale alerts.

  • Using price comparison tools and apps like Honey, PriceGrabber or ShopSavvy.
  • Shopping on Black Friday, Cyber Monday or pre-holiday sales but don’t impulse buy.
  • The earlier you shop, the more chances you have to find discounts and avoid full-price last-minute purchases.

Use Cash-Back and Rewards Programs Wisely

Many credit cards offer more rewards for holiday shopping. The key is to not overspend. A Federal Reserve Bank of Boston study found that rewards programs can actually encourage more spending if not managed properly. To maximize your rewards:

  • Use cards with the best rates in categories like department stores or online shopping.
  • Redeem your points or cash back to offset your holiday expenses.
  • Set a spending limit and track your spending.

Other Gift Options

According to 2024 data from Statista, 22% of Americans will be making homemade gifts this year as the trend toward more personalized and budget-friendly holiday shopping continues.

Here are some budget-friendly, thoughtful options:

  1. Handmade items: Make personalized gifts like photo albums, hand-knit scarves or homemade goodies and get a personal touch without the price tag.
  2. Experience gifts: Give memorable and often affordable experiences like cooking classes, concert tickets or museum memberships.
  3. Charitable donations: Donate in the recipient’s name to a cause they care about and get a meaningful gift that fits with a more minimalist holiday.

Mindful Spending During the Holidays

Use Cash or Debit Cards When You Can

Using physical cash or debit cards helps you stick to your budget. This visual limit helps you avoid overspending and creates discipline.

One way to do this is the envelope method:

  • Assign a set amount of cash for each category.
  • Once the envelope is empty, you stop spending in that category.

Track Your Spending in Real-Time

Budgeting apps like Mint or You Need A Budget (YNAB) are great tools for keeping you in check. Real-time tracking is key in 2024, as prices and costs can be more unpredictable than ever.

They can:

  • Help you set holiday-specific categories.
  • Send you alerts when you’re nearing spending limits.
  • Give you a clear view of your holiday spending habits.

Avoid Impulse Buying

Impulse buying is a big trap during the holiday season. According to 2024 data from Capital One, 72% of online shoppers said they make impulse purchases because of advertised discounts and 67% said a sale convinced them to buy something they hadn’t planned on buying.​

To beat this habit during the holiday season, try:

  • Wait 24 hours before buying something unplanned to give yourself time to think.
  • Unsubscribe from retailer newsletters to stop the sales alerts.
  • Make a shopping list and stick to it so you’re only buying what you really need.

Learn more: https://capitaloneshopping.com/research/impulse-buying-statistics/

Creative Ways to Save Money

Host Potlucks

Instead of shouldering the whole cost of holiday meals, host potlucks. This way, everyone contributes and shares the financial and labor burden.

Set Gift Exchange Limits

Big families or friend groups can do gift exchanges like Secret Santa. Setting a price limit, such as $25 or $50, will cut down on individual expenses but still keep the gift-giving fun.

Look for Free Holiday Activities

Take advantage of free community events to enjoy the season without breaking the bank.

Examples:

  • Tree lighting ceremonies
  • Free holiday concerts
  • Light displays in neighborhoods

Managing and Paying Off Credit Card Debt

Assess Your Debt

List all your credit card balances, interest rates and minimum payments. This will give you a clear picture of your situation and help you plan.

Prioritize High-Interest Debt

Pay off high-interest credit cards first. The debt avalanche will save you money in the long run. If you need quick wins to stay motivated, the debt snowball (paying off the smallest balances first) can work.

Balance Transfer

If you have good credit, many banks offer 0% APR balance transfer deals, which can give you a break from high-interest debt during the holiday season. Just make sure you read the fine print, including the balance transfer fee and 0% period.

Long-Term Financial Health Strategies

Build an Emergency Fund

One of the best long-term strategies is building an emergency fund. Aiming for 3-6 months of living expenses can help you avoid using credit cards for unexpected expenses.

Review Your Budget Regularly

Use the 50/30/20 rule to guide your budget year-round. Allocate 50% of your income to necessities, 30% to discretionary spending, and 20% to savings and debt repayment.

Educate Yourself on Personal Finance

Take the time to improve your financial literacy. The CFPB offers free resources, and there are numerous books, podcasts, and blogs focused on financial management.

Plan for Next Year’s Holidays

Start planning for 2025 immediately after t his season ends. Spread out your gift buying, look for sales throughout the year, and save incrementally.

Conclusion

Holiday spending and credit card balances require planning, smart shopping and mindful spending. By following these tips, you can enjoy the holiday season without sacrificing your financial well-being. The best gift you can give yourself this season is peace of mind.

By making smart financial decisions now, you can have a stress-free holiday and prepare for a financially healthy new year.

References

  1. Deloitte Holiday Survey 2023: www.deloitte.com
  2. CFPB Holiday Spending Guide: www.consumerfinance.gov
  3. FDIC Consumer Resources: www.fdic.gov
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