How to Minimize Debt This Holiday Season

Happy Family Making Christmas Gifts At Home.

The coming holiday season promises to ring out a tumultuous year, but with many people struggling financially, it's wise to plan ahead to avoid debt in this year's holiday gift-giving—and the stress that can accompany it.

Here are some tips on how to avoid the anxiety of running up holiday bills that could cause undue strain in the New Year.

Set Limits for Yourself

Make a holiday-spending budget and stick to it. Include spending on decorations as well as gifts. And if you're planning some pandemic-friendly entertaining this season, don't forget to account for that as well. Formulating a game plan according to your available funds can help you avoid spur-of-the-moment spending and rushed shopping trips that lead to unintended purchases or overspending on items you can buy more affordably if you do some homework and compare prices.

Start Buying Gifts Now and Pay as You Go

Shopping thoughtfully for one or two gifts each week between now and the holidays, while taking care to stay within your budget, can be more fun and more cost-effective than a big shopping spree. Using cash from non-emergency savings or checking, in relatively modest amounts, can help you avoid overspending. If you prefer to use credit cards to collect bonus points or cash back bonuses, or to take advantage of their purchase protection benefits, you can do so and then make a payment in the amount of the purchase price immediately to keep interest charges from accumulating.

Consider Gift Swaps

COVID-19 has curtailed pull-names-from-a-hat gift exchanges, but virtual alternatives such as and its companion smartphone apps still make them possible. Elfster lets you set a spending limit, invite exchange participants and set up rules about matching givers and recipients (for example, blocking spouses or siblings from being paired up). The app assigns recipients automatically by text or email so no one, not even the group organizer, knows who's paired with whom. You can set a small spending limit for work or school groups, but what can really help prevent holiday debt are exchanges among groups that normally exchange individual gifts. That allows you to set a relatively high spending limit on them, but because participants only buy one gift instead of several, everyone still saves some cash.

Tap Into Low Intro Interest Rates

For the holiday season—and even spending into next year—consider applying for a credit card with a 0% introductory interest rate on purchases. If your credit is good, you may qualify for cards that have no annual fee and will give you more than a year to pay off your holiday purchases without incurring any finance charges. Note that if you don't pay off your balance in full before the end of the introductory period, any remaining balance will be subject to the card's standard interest rate on purchases.

You might also consider a card that offers an intro bonus if you rack up a certain volume of purchases within the first few months of opening the account. For instance, the Chase Freedom Flex℠ offers a $200 bonus if you spend $500 on eligible purchases within the first 90 days of opening the card. Don't take that as license to overspend, but if you're confident you can repay your purchases within the introductory period, putting your holiday gifts on that card could bring a nice payoff.

How to Pay Down Post-Holiday Debt

If you end up with some credit card bills over the holidays, or find yourself dealing with debts accumulated earlier in the year, resolve to tackle them methodically in the New Year. That can give you a sense of control and ease your stress. The avalanche and snowball strategies are both proven approaches that can help you steadily chip away at outstanding credit card balances. Pick one of them, or any other system that works for you, and work at reducing your debt.

How Debt Affects Your Credit Scores

Keeping a lid on your debt won't just bring peace of mind, it could also help you improve your credit score. Excessive debt of any kind can hurt credit scores, and any credit card balance that exceeds about 30% of its borrowing limit can be particularly troublesome. Getting card balances below that threshold and otherwise working to improve your credit score is especially important if you plan to apply for a car loan or mortgage in the New Year, since lenders will be checking your credit scores to help decide how much they're willing to lend you, and how high an interest rate to charge. Polishing up your credit score can help you qualify for the most affordable lending terms you deserve.

To keep an eye on your credit all through the year, and to receive notices that can help you avoid lowering your credit scores, consider adding Experian's free credit monitoring service to your wish list. It won't cost a cent but, in the long term, it could help you save big in interest payments.

Avoiding debt during the holidays is always a good goal, and it may feel even more urgent after a year of pandemic and concern over health, employment and retirement savings. Opting to be a little extra frugal this year could make for an opportune start to the New Year, and it won't take anything away from what really matters about the holidays. All the best to you and your family.

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