(Nerd wallet) – Heading into the holiday season with high-interest debt or financial hardship can put you at risk for a debt hangover that can last for years.
Unfortunately, this is a crossroads that many will encounter this holiday season. Credit card balances rose to more than $1 trillion in the second quarter of 2023, according to a New York Fed report. According to data from the US Federal Reserve, the average assessed interest rate for credit cards as of August 2023 was 22.77%. Compared to last year, that percentage is surprisingly high.
With interest rates soaring, it’s one of the worst times to charge your credit card for an expense you can’t pay off right away. Before you shop for the holidays, consider these ways to clarify your goals and protect your finances.
1. Find ways to reduce high-interest debt
If you’re already in debt, consider ways to save on interest. Depending on your credit, several options may include:
- a 0% Introductory APR Balance Transfer Credit Card: This card allows you to move your debt from another account to the card and get a lower interest rate. The ideal card has no annual fee and a balance transfer fee of 3% or less. Compare the cost of fees to the expected interest payments on your current card to determine if it’s worth paying.
- Personal loan: If you have multiple debt balances, you can simplify your finances with a personal loan that consolidates your debt into one low-interest fixed payment.
- debt management plan: If you’re having trouble paying your bills, a counselor at a certified nonprofit credit counseling agency can, for a fee, determine your eligibility for a debt management plan that consolidates your balance into one low-interest fixed payment. Madison Block, product marketing manager at American Consumer Credit Counseling, said interest rates can be lower because these organizations have relationships with creditors.
Also consider your budget You have the opportunity to save money by eliminating unnecessary expenses and replacing others with cheaper alternatives. Then, put the money you saved toward your debt and contribute enough each month to pay it off by your desired deadline. Prioritize your debts during the holiday season and adjust your purchases to help you reach that goal.
2. Create a holiday list
Incorporating holiday spending into your annual budget is a good way to prepare for seasonal expenses. But even if you know how much you have to spend, holiday shopping can quickly go over budget if you’re not careful. A simple but powerful tool that will help him one. Make a list and use your available money to decide how much to spend on gifts, decorations, food, travel, and other holiday purchases.
Every Christmas, Texas resident Lizbeth Barajas makes a detailed list of her holiday expenses in order to reach her goal of paying off her student loan debt. She and her husband budget gifts throughout the year for her two children, ages 3 and her 6, and their two sides of her family.
“Making that list early makes it easier to know exactly what you’re buying without having to do last-minute shopping, which can lead to overspending,” says YouTube channel Lizbet Talks. Barajas, a content creator for “Money.”
Robin Goldfarb, a Florida resident and blogger at A Dime Saved, also budgets for Hanukkah throughout the year to avoid debt. She and her husband have budgeted $50 for each gift for her three children, ages 2 to 10, and she has budgeted $50 for each gift for her three children, ages 2 to 10, for her 1 out of her 8 nights of Hanukkah. I will give you a present only in the evening.
“One night you’ll make donuts, one night you’ll make cookies, and every night something fun will happen, and it doesn’t necessarily have to be a gift or something expensive,” she says.
3. Consider money-saving alternatives
Consider which expenses are negotiable and which are not. If you want, stretch your money this year by changing the expectations of your friends and family. With prices still high due to inflation, you might welcome more budget-friendly options like potlucks, secret gift exchanges, kid-only gifts, and gift price limits.
supplement your income Shopping during the holiday season can also help you avoid going into debt for essential purchases.
“One thing people can do is take on seasonal, part-time jobs or side hustles,” Block says. “If you have unused items, old furniture, or other things lying around your house that you don’t even use, selling them on Facebook Marketplace or Craigslist can be a great way to make a little extra cash this holiday season. There is a possibility.”
Creativity can also lead to savings. This is how Goldfarb saves money on decorations.
“I let the kids make something and I save it every year,” Goldfarb says. “There are a lot of ideas online.”
4. Set guardrails to fit your budget
You can keep your finances debt-free by temporarily switching your payment method to debit or cash. In previous holiday seasons, Barajas used the following version: cash envelope system To stay on track. You can avoid overspending by placing fixed amounts in envelopes for each categorized holiday expense, such as gifts, meals, and travel.
“It’s more visual,” Barajas says.
5. Look for bargain information
Look for great deals.use Browser extension or appIt may help you find coupons and discounts on a variety of products, including Honey, Flipp, CouponCabin, and more. Some major retailers, such as Amazon, Walmart, and Best Buy, also have online outlets and open box sales that may offer lower prices on items. Compare prices to decide if you’re getting a good deal.