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Avoid holiday debt

Nina Spitzer is a SheKnows.com columnist and a freelance writer living in sunny Cave Creek, Arizona.

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Did you end last year's holiday season in debt up to your eyeballs? Are you buying into the illusion that the next holiday season will be better? Think again!

Woman Writing Check in front of Christmas TreeIf the most lasting memories from Christmases past are huge charge card balances, you've probably resolved not to let it happen again this year. But no matter where we are on the calendar, the next holiday season is always just around the corner. Why not make some wise choices today that will let your holiday spending of tomorrow be debt-free? First step: Open a holiday savings account.

What's a holiday savings account?

Many banks and credit unions offer holiday savings account plans. This is an easy and painless way to save for Christmas gift shopping all year long. These accounts can be opened with either a small or no minimum balance and usually do not incur a service fee.

These accounts usually earn interest at the same rate as a basic savings account. You can make deposits directly or have your bank regularly transfer a designated amount of your direct deposit funds. Early withdrawals are permitted with a small penalty (or none at all). A check for the full balance on the account is sent to you some time between October and November so you can begin your holiday shopping stress-free.

What are its advantages?

A holiday savings account is a great way to help plan ahead, as well as get finances under control! Saving is especially easy if the deposits are automatically deducted from a current account. Little by little, the holiday account accrue a balance interest. When the holiday season arrives, you won't have to feel overwhelmed with expenses and can have fun shopping. That sure beats using charge cards and accumulating more debt. Instead, you'll go into the Christmas shopping season with money already saved for holiday gift spending and a lot less stress.

What are its disadvantages?

About the only disadvantage is that the dividends earned on holiday savings accounts are usually low. Other alternatives, like a money market account, offer much better rates.

Still, a holiday savings account is a good way to discipline yourself into saving money throughout the year and having cash when you need it.

What if my bank doesn't offer it?

You can use your own savings account or create a new account specifically for holiday savings. This would be a good alternative, since it allows you to take advantage of accounts offering higher interest rates. As with the holiday savings account, you must be disciplined about regularly making deposits or designating automatic transfers from another account.

When is the best time to open a holiday account?

A holiday savings account can be opened any time during the year; however, the earlier in the year you begin, the more time you will have to accumulate a nice lump of cash to put toward gifts.

How can I make it work best for me?

Start now by budgeting how much you think you will need for your holiday gift shopping. Pad the figure you come up with by a good amount, since there are always a few gifts we hadn't thought of. Next, divide that amount by 10 to determine how much you will need to save each month to achieve your goal. If you tend not to be a disciplined saver, setting up automatic deposit into the account will be crucial. The key is to not withdraw money until it's time. Your goal is saving for the holidays all year long, and making early withdrawals would defeat that purpose.

A holiday savings account makes a lot of sense (and cents). So open one asap and enjoy a debt-free holiday!

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