The holidays are the season of joy, but they are also the season of spending – sometimes beyond our means. According to LendingTree, in 2021, 36% of Americans took on holiday debt averaging $1,249. Last year more individuals are borrowed money for holiday spending than the year before, and that trend is expected to continue in 2022
At Hippo Lending, we understand that sometimes we need to let loose and enjoy time with loved ones without worrying about our balance. But saving doesn’t have to be stressful. With the right preparation, you can purchase what you need to enjoy the season without incurring unnecessary debt. In this article, we are presenting a few ways to avoid debt as well as some helpful tips to get out of Holiday debt, just in case the season of spending does get the better of you – hey, we’ve all been there.
How To Avoid Overspending this Season
Create a Holiday Budget
The temptation to spend is never higher than during the holidays. Our inboxes overfill with delectable deals promising savings. In stores, discount bins are piled high with gift ideas. Though it’s true that Black Friday and Cyber Monday typically offer the best deals you will see all year, the FOMO (fear of missing out) we experience in reaction to these limited offers often encourages us to spend more than we should. Sure, purchasing an eighty-ich flatscreen typically priced at $1,000 for a mere $499.99 seems like a great deal. But is it really saving you if you weren’t planning to spend any money on a new tv this year?
Creating a budget – and sticking to it – is never more important than during the holidays. Your budget should include all your typical monthly expenses, from your house payment and electric bill down to your Netflix subscription. As you write each expense down, you may discover a few that you can do without for a while. For example, perhaps you don’t need a Netflix, HBO Max, and HULU Subscription to fulfill your entertainment needs. Or maybe there are a few Prime subscriptions you haven’t used in a while. And when was the last time you went to the gym? Cutting costs like these means you can allocate more funds to gifts or food.
Make a gift list
Once you know how much funds you need to allocate to the necessities, you can start assigning funds to gifts, travel, food, and other holiday expenses. Of all these expenses, gifts are the one most likely to explode. We want to make our loved ones happy – it’s human nature. Advertisers know this and work hard to pull at our heartstrings more than ever during the Holiday season. To avoid temptation, make a gift list – and stick to it. Remember that the thing your loved ones want most on Christmas is to see you. Try giving from the heart instead of the wallet. Sometimes a framed picture of a grandchild or a thoughtfully written Christmas card brings far more joy than a new gadget.
Don’t splurge on Christmas Décor
We all want our home to look lovely for the holidays but reusing old décor or creating new décor from items around the house will allow you to spend more on travel, gift-giving, and food. If you need new décor, try to shop early as possible, you can find great deals on seasonal décor off-season.
Another great option is to take a walk with the family and collect materials from nature to craft into décor. Handmade ornaments and decorations warm hearts with memories of Christmases past – that’s not something you can buy at a store. If you don’t live in an area with an abundance of evergreen and mistletoe, search for creative methods to repurpose locally available natural materials. A simple Google search for “”desert Christmas décor crafts,”” for example, will yield hundreds of options.
Spend Responsibly
According to LendingTree, in 2021, 36% of Americans took on Holiday debt averaging $1,249. The report found that 62% of holiday borrowers with debt put it on their credit cards, with another 40% opting for buy now, pay later financing. Both of these popular payment methods promise instant gratification with little financial ramifications. But beware: overspending always comes with consequences.
The issue with credit cards is their high-interest rate. Investopedia reports that in 2022, the average interest rate for credit cards will be 21.99%. Credit card interest works like this: each month you carry a balance, you are charged interest. Unpaid balances are charged interest daily based on your card’s APR. That interest is added to your total balance, increasing the amount you owe. As your balance grows each day, so does the interest you are charged. This is called compounding interest, and it can cause credit card debt to snowball.
Most credit card companies do not charge interest if you pay your balance on time. However, LendingTree reports that 82% of individuals with Holiday debt will not be able to pay it off in a month, meaning they will be charged interest. For individuals with a substantial balance on their cards, their credit card debt could grow by hundreds of dollars each month.
Though buy now, pay later (BNPL) plans can sound tempting, they come with many of the same risks as credit cards. Sure, many advertise no interest, but most credit cards don’t charge interest either as long as you pay your balance on time. BNPL plans often charge fees for late payments, and some charge interest as well, meaning there’s often little difference in the total amount you will spend between credit cards and BNPL plans. Additionally, there’s a lot more variation in the terms offered BNPL than with credit cards. So, if you do opt for BNPL, make sure to read the agreement carefully.
How to Rid Yourself of Holiday Debt
We’ve all been there – especially during the tumultuous years leading up to 2022. There was a pandemic and economic issues, and many of us just wanted to celebrate the little things. Now we have lingering holiday debt that’s a hassle to pay off. It’s a trend that has increased in recent years and which will likely continue this year as well. Luckily, there are ways to streamline payments and most likely save money in the process.
Debt Consolidation
Debt consolidation is the process of taking out a loan to pay off credit cards and existing high-interest loans. You can simply make one payment each month and be done. No more dealing with several payments to several credit card issuers and lenders. That means fewer payments to keep up with, fewer late or missed payments, and also fewer interest rates – which not only saves time but money as well. Often, the new loan will have a lower interest rate, meaning you save money as well.
Balance Transfer Card
A balance transfer card is a credit card that you get in order or pay down another credit card whose high-interest monthly payments are proving too unwieldy for your pocketbook. It may sound a bit nonsensical to pay off one card with another. After all, you’re not eliminating the debt; you’re merely moving it to another account. But a good bank transfer card will come with an introductory offer such as 0% APR for the first six months or a $0 annual fee. By transferring your balance to a card such as this, you will no longer have to worry about paying interest as long as you pay the balance within the introductory period. Your credit card debt will cease snowballing so you can catch up on payment.
You can read more about balance transfer cards here
