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5 Ways to avoid holiday overspending

Avoiding holiday debt hangover

How can you avoid spending too much money during Christmas and the holidays? The last thing you want after the holidays is credit card debt! The day after Thanksgiving is often called Black Friday because it's when retailers finally get out of the red and into the black of profitability for the year. Although that rule of thumb doesn't apply to all retailers, it's still the case that sales on Black Friday and the weekend that follows are essential to annual retail industry profitability.

According to the National Retail Federation, during the 2004 Black Friday weekend, 86 million people spent a total of $23 billion, about 10 percent of total holiday shopping for that year. Although 2004 sales exceeded 2003 by a healthy 4.5 percent, it's doubtful that 2005 will continue that trend. With increases in energy costs and inflation, households have less spare change and are less confident about the future. You'd better believe that this has the retail industry worried.

Good for retailers, bad for your budget

You've probably seen the results of those worries. It used to be rare to see Christmas displays before Thanksgiving. This year, most stores were decorating long before Halloween! The point, of course, is to extend the holiday shopping frenzy so that you'll spend more money than you would have otherwise.

This is not healthy for household budgets. It's a bit ironic that a profitable holiday season is great news for the retail industry and the U.S. economy, but that each individual household would be better off to cut back on spending.

Instead of falling victim to the urge to splurge over the next two months, now is the time to remind yourself about those resolutions you made last January - not spending so much on holiday gifts this year and reducing your credit card debt. Unfortunately, a large percentage of this year's holiday purchases will end up as credit card debt, adding to the more than $2 trillion owed on existing cards. And studies show that people spend more when they use credit cards and are less likely to comparison shop.

How to avoid holiday overspending

Here are a few suggestions for how to keep your holiday spending and credit usage under control:

1. Cut your gift list. Suggest that your family draw names so that each person only has to purchase one gift. This works for groups as well. Several groups to which I belong have organized gift exchanges for participants to pick from the wrapped gifts based on drawn numbers.

2. Think of alternatives to purchased gifts. Some people on your list may prefer a photo of your kids or a tin of homemade cookies. When my kids were little, a free night of babysitting would have been welcome.

3. Stick to a budget. Based on your available budget, decide on a dollar limit per person on your list. An increasingly popular way to do this is to buy a gift card in that amount - it's expected that about half of all consumers will buy at least one this holiday season. Just don't fall victim to the temptation to buy a bigger gift card because the recipient will know exactly how much you spent.

4. Look for bargains. Although it takes a bit more time, you can save a lot of money by checking circulars and the Internet for special sales on items you plan to purchase. Last year, I found a great deal on boxed amaryllis bulbs and gave them to several of my friends and relatives.

5. Pay with cash. Avoid the high cost of credit card interest and the dangers of exceeding your budget by paying only with cash or debit. (Next year, avoid the cash crunch by budgeting a payment to your Holiday Gift Fund each month.) And if you use a credit card to qualify for discounts or airline miles, be sure to pay it off before it accumulates interest.

More holiday budget tips:

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