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4 Things You Need to Know About Holiday Spending

woman shops and is mindful of controlling holiday spending

For many consumers, the weeks approaching the holiday season are the most expensive time of the year. The average shopper spent nearly $900 on gifts alone in 2015, according to the American Research Group. From going overboard on gifts to unplanned expenses for travel and entertaining, holiday debt can add up fast. You can control credit card spending by creating a holiday savings plan, using credit card rewards wisely, prioritizing your gift list, and planning early for next year.

1. How should I create a holiday savings plan?

Be realistic about how you spend your money. Start your plan by tracking your daily expenses for a week. Write everything down, and remember, every dollar counts – from buying morning coffee to ordering takeout to spending impulsively at your favorite shop.

Temporarily foregoing your favorite little luxuries can go far. For example, spending $4 per day on a large coffee and a bagel adds up to $120 per month, so bringing breakfast from home for two months adds up to $240. Love ordering out? At $10 per delivery, skipping just one takeout weekly adds up to $90 over two months. Do both and you’re over one–third of the way toward saving $900 for the holidays. Commit to this plan for a full year and you’ll have saved $1,980—enough for debt–free, guilt–free holiday shopping season, plus a little extra.

Avoiding impulse shopping takes you even farther. Before you buy, go home and think it over. If you’re still obsessed several days later, reconsider.

2. How can I use my credit card rewards to offset holiday spending?

Some ways to offset spending include saving rewards all year for redemption at the holidays, taking advantage of special promotions such as double points offers, and using miles programs to reduce the cost of travel.

Waiting until the holiday shopping season to redeem credit card rewards can help you stretch your holiday budget farther – especially when you combine those benefits with special promotions your credit card issuer may offer. For example, you may have the opportunity to buy discounted gift cards. The chance to buy a $100 gift card for $80 means you’ll instantly earn a $20 rebate before you’ve applied any other discounts that may become available.

If you plan to travel over the holidays, explore transportation and accommodation promotions, such as trading in accumulated rewards for hotel loyalty points. If you have an airline miles credit card, you may also be able to reduce the expense of your holiday travel plans by redeeming accumulated miles.

It’s also not too early to think about next year’s holiday spending. Planning ahead may help make some of your more expensive traditions or trips doable by the end of the year. For more credit card spending tips, see How Using Credit Wisely Can Help You Achieve Your Goals.

3. What can I do to avoid holiday debt?

Before you shop, prioritize your shopping list, and assign a dollar value for each present. Plan to buy essential gifts first, and if you know what you need to get, research pricing now so you can quickly identify a good value later.

With discipline and planning, you may be able to score the deals you want on the must–purchase gifts on your list. Price comparison apps can help you find the best bargains on goods you want to purchase. Also, the holiday shopping season is a great time to enroll in store loyalty programs. For example, signing up to receive regular promotional emails from your favorite online merchant is sometimes enough to earn a one–time 20% discount.

Prefer to shop in person because you need to see what you’re buying, or you’re not sure what to get? Resist the temptation to shop for yourself on Black Friday and Cyber Monday, when deals can be tempting. Also, exercise caution when opening up a store–sponsored credit card, even if the retailer offers a discount on your purchase. Unless you have the funds to pay the bill in full immediately, you may wind up paying more in interest fees than the discount is worth.

For more holiday spending tips, check out 7 Secrets to Shopping Smarter: Ways to Save Money on Holiday Gift Ideas.

4. How does a holiday savings account work?

Although banks sometimes offered special holiday savings accounts decades ago, they are somewhat unusual today. That’s because any account can function as a holiday savings club. To create your own fund, make saving a habit in the months prior to the shopping season, then withdraw what you need as you buy.

If you’re not sure how much to save, add up your receipts from this year. Divide that number by 12 for an idea of how much you need to save every month to avoid holiday–related debt next year. Automatic transfers make saving easy and convenient.

Finally, total holiday expenses often exceed the price of presents. Don’t forget to save money for decorations, entertaining, and travel. Knowing you’ll wake up on January 1st without a huge credit card bill can help you toast the season now and avoid a debt headache later.

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