These days, too much spiced wine isn’t the only cause for a holiday hangover. For many Americans, too many swipes of the credit card in the months leading up to New Year’s Day result in an uncomfortable post-holiday aftermath.
To ensure you’ll start the coming New Year on the right financial foot, here are 7 tips for minimizing credit card debt and its potentially crushing effects.
1. Adopt a new mindset
Before we get into the nitty-gritty of how to minimize the damage your plastic can do, let’s step back and talk about the importance of approaching holiday spending with a positive, healthy POV. The holidays have become synonymous with excess, and while this mentality is understandable—who wants to set boundaries on quality time with their loved ones?—it often gets taken to extremes, which can wreak havoc on your finances. (Not to mention your psychological state.)
You don’t need to turn into Scrooge, but you need not spend tons of money to enjoy the holidays either. For instance, will serving your turkey on an expensive silver platter really make your Thanksgiving more meaningful? Do you really need a new outfit for the office Christmas party? Must you buy your child every single toy on the shelf?
The answers depend on your priorities, of course, and those are entirely up to you. However, if you find yourself stressing entirely too much over too many expectations, remember it’s totally ok to let some things go.
2. Budget no more than 1.5% of your income for holiday spending
As a rule of thumb, financial planners say you should spend no more than 1.5% of your annual income on the holidays. This includes everything from gifts and travel to wrapping paper and shipping costs.
For example, let’s say your yearly income is $51,939 (this is the average American salary). Therefore, you’d be wise to cap your holiday spending at $780.
However, the average American spent $830 on Christmas alone in 2015, so depending on how much you want to spend on Thanksgiving and New Years, you may have to up your overall holiday budget and/or eliminate some expenses.
3. Join a “Christmas club”
A Christmas club—which is, despite its name, not a club at all—is a short-term savings account that usually pays out the full balance to its account holder once a year, right before Christmas.
This type of savings account helps people save for the holidays by accruing interest and penalizing them for early withdrawals. Many Christmas club accounts also offer systematic savings through automatic withdrawals or transfers.
The interest rate on a Christmas club is not remarkable, but the goal isn’t to make a killing on interest. Rather, it’s to nurture a holiday-expenses nest egg throughout the year, so that by the time the holidays arrive, you can comfortably hatch your holiday plans.
4. Use the snowball method
This helpful suggestion comes from Investopedia. It’s a common-sense technique that involves charging as many purchases as you can to the credit card with the highest interest rate and then prioritize paying that card down. Meanwhile, you make the minimum payment on debts with the lowest rates. Once the highest interest debt is clear, you focus on the next highest, and so on down the line. Why would you want to do this? Like Investopedia says, “This will lessen your overall interest payments and shorten the length of time it takes you to repay your total.”
5. Use store credit cards sparingly
Store-issued credit cards do offer benefits that come in handy at Christmas time, like discount coupons and free gift wrapping, but beware: store cards tend to come with pretty high interest rates. If you make a purchase, be sure to pay off your balance before the next billing cycle starts, otherwise you’re going to pay significantly more for your gifts than you intended.
6. Give a gift from the heart, not the mall
All season long we are bombarded with messages like, “Nothing says ‘I love you’ like this [insert random product here].” Not only are these messages misleading—that ever-so special product is being hawked to the masses—but also they’re just not true. Store-bought gifts are not always the most thoughtful ones. A homemade, or even a hand-me-down, present is more meaningful than anything sold in stores.
For example, one Christmas, back when I was a poor college student, I gifted my sister a ring of mine that I knew that she coveted. That I was willing to part with my beloved ring to give her something she truly wanted meant waaay more to her than any jewelry I could have purchased in a store. And the best part? She still wears that ring to this day.
If you have a smart tip or two, please share in the comments section below. I’d love to hear them and I’m sure fellow readers will too!