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Managing Money and Avoiding New Debt During the Holiday Season

The holiday season generates months of heavier spending. While it can be reasonable to buy gifts for friends and relatives who visit on Christmas or Thanksgiving, the pressure can be high to spend a lot and buy really nice gifts. This year, American gift-givers will spend an average of $660 on gifts, according to CBS News. Although this number doesn’t seem terribly high, debt among holiday gift givers is on the rise, according to NerdWallet research.

Why Holiday Debt Can Become a Problem

Holiday spenders say that they only plan on spending roughly the same amount as they did the previous year. However, over 50 percent overspend or spend randomly without any sort of budget. Even holiday budgeters end up overspending because people don’t really limit spending during the holiday season. When there are so many “holiday discounts” being offered by retailers, it can be really hard to stop spending because you feel like you are saving money.

What all this spending leads towards is more debt, especially at the start of the New Year. In 2016, a large number of holiday spenders took on debt to finance purchases. The older generations are highly likely to borrow for gifts. Even about 40 percent of millennials borrowed cash to buy gifts during the previous holiday season. All these people then incur debt the following year.

For example, in 2016, about 24 percent of millennials who used credit cards to make purchases had yet to pay off the debt in 2017. Most people take longer than a month to fully pay off credit card debt acquired during holiday seasons.  Every month with a carried credit card balance causes interest, which adds to the debt, and the cycle continues.

Could Holiday Spending Lead to Bankruptcy?

If holiday spenders take on too much debt, especially credit card debt, it could snowball during the following year, leading to possibilities like bankruptcy. Now, a bankruptcy attorney in Scottsdale will advise that not all those in debt are eligible for Chapter 7 bankruptcy, which eliminates most unsecured debt like credit card debt. If credit card debt takes more than four to six months to pay off, the situation could end up becoming problematic.

Holiday spending on credit can pose serious risks to younger buyers in particular. Millennials are still building up credit, which means holiday spending could lead to more ill-advised purchases in the future which then creates a cycle of debt.

Avoiding the Holiday Spending Debt Trap

There are several recommended ways to control holiday spending so consumers do not end up severely overburdened. The first step is making a realistic budget that spenders can reasonably stick to. It’s recommended to keep gift purchases at about 30 percent of the monthly income. However, spenders can give themselves a break and increase the threshold just a bit, but only so as the limit is still at comfortable levels.

Then, avoiding impulsive purchases is the next step. Don’t fall prey to the holiday season advertising. Shop with a list and buy only items you need. Compare prices online to make sure you are not overspending. If it’s a good idea today, it’s a good idea tomorrow.  Don’t rush your spending.

And lastly, pay off credit card debt the following January without holding it off for longer, which will increase the interest fees on the existing debt.  Take your medicine, pay off the card, and tighten the belt in the first quarter each year, if you choose to spend during the holidays.

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