If you’ve visited any retail shops lately, you may have noticed holiday decorations starting to fill the shelves. As retailers are launching holiday décor and sales earlier than ever before, it can be tempting to splurge during the holidays.
Unfortunately, splurging during the holiday season can result in carrying debt well into the new year. While it may feel good to be able to purchase the “perfect present”, you don’t need to acquire debt to make the holidays special for loves ones.
Planning ahead can save you a great deal of stress and money. Shopping throughout the year and sticking to a budget can eliminate the need to acquire new debt. Enjoy your holidays knowing that you spent your money wisely and won’t still be paying for gifts next year.
Credit card interest rates can drastically increase how much you’re actually paying for a gift. According to the Federal Reserve, the average interest rate for credit cards is almost 14%.
Let’s do the math: If you spend $1,000 for holiday gifts on your credit card at 14% interest, with a minimum payment monthly payment of $25 a month, you would be paying almost $355 in additional interest. It would take you over four and a half years to pay off the debt incurred.
Be wary of retailers who offer a discount when you make a purchase if you open a store credit account. This may cost you more in the long run if you don’t pay the card off each month. Most retail credit accounts have an average interest rate of 25%.
Let’s do the math: If you spend $1,000 on your retail credit card, with a monthly payment of $35, you would be paying an additional $535 in interest.
Paying for holiday purchases with cash is a great way to stick to a budget and avoid accruing more debt. Coming up with a $1,000 for holiday gifts will be less difficult if you start saving throughout the year. Consider opening a holiday savings account, or Christmas Club, with your bank, credit union, or insurance company.
Although a holiday savings account you may earn a lower interest rate than other savings accounts, if you’re concerned about making sure you don’t dip into the funds this may be for you. A typical holiday savings account will only allow you to access funds around the start of the holiday season, typically early November. If you start saving $25 the first week of January and continue until November 15, you would have over $1,100 to spend on holiday purchases.
Earn additional income while getting rid of the clutter. You need to make room for your new holiday gifts, so sell your good quality items. You can use tools like Facebook Marketplace, eBay, Craigslist, or Amazon. You can also sell your items from your phone using mobile apps like letgo or Wallapop.
When selling items online you should take a picture and post a description with accurate details. Make sure your items are clean, in good working condition, and priced fairly. Search for similar items to get an idea of appropriate pricing. Use good common sense for your safety – meet sellers in a public space and don’t accepts checks.
Layaway allows you to select items you want to purchase and have the store hold them for you until you pay off the balance. Layaway typically requires a down payment – a percentage of the total purchase price. You make scheduled weekly or biweekly payments until the balance is paid off.
The good part is that you save hundreds by not getting into debt; however, be aware there are fees associated with layaway including service and cancellation fees. Check the store’s policy to determine any associated fees in case you can’t pay for your purchase, and what happens if items go on sale.
Shop when there are good sales or purchase items off-season to find the best deals. At the end of each season, retailers slash prices to move products off the shelves. Strategically purchasing items can save you lots of money. Just make sure you have the space to store your purchases.