During the holiday season — think Black Friday through New Year’s — it can easy to go into auto-pilot and spend too much money.
We’re not here to be a Grinch and tell you not to spend any money. It’s going to happen. But the trick is to not let that spending give you a debt hangover. That’s why we think making a plan for avoiding, taking on, and paying off debt that makes sense.
If you track of your money, avoid lifestyle creep, and put savings away throughout the year, you might be able to build a designated holiday fund and avoid holiday debt altogether.
But if you didn’t get your cash-only game plan together until now, don’t worry. You can always restart your financial plan for 2019. (Tip: An easy way to squirrel away $300 each year is with automatic savings tools like Save Your Change.)
In the meantime for this holiday season, think about where you can cut back on travel and gifting, or find another source of income to make up the difference.
If you still have to borrow money, you can try and figure out the most advantageous way to do it.
More than 70% of people said they used at least one credit card to make holiday purchases last year, according to a survey of 1,000 by Propeller Insights for Varo Money. More than 50% of people said it would take longer than a month to pay it off.
That means if you’re turning to credit, using the right card and understanding your card’s terms could make a big difference in your overall cost.
Opening a new credit card that offers 0% APR on purchases could be a money-saving option. Depending on the card, you may have around 9 to 21 months to pay off your balance without paying any interest. You could set up automatic monthly or biweekly payments to make sure you follow through with the plan.
Try to pay off the balance as early as possible rather than using the entire promotional period. In some cases, usually with store cards, if you don’t pay off the balance before the end of the promotional period you’ll be charged for all of the interest that would have accrued. With most non-store credit cards, the remaining balance will start to accrue interest after the end of the promotional period.
Taking out a loan could still be more expensive than a new credit card with a promotional rate. However, it might make more sense if you want the accountability of having a fixed-term loan with pre-set monthly payments.
With a credit card, if you’ve been paying your bill in full each month and your card has a grace period, you’ll likely have around 51 days between the start of your statement period and the bill’s due date.
You may be able to time your purchases with the beginning of a statement period to give yourself over seven weeks to pay. There are about four paydays during that period (if you’re paid every other week), and you can make partial payments on your card to lower or pay off the balance before your credit card bill is due.
If you expect to take on a little debt this holiday season, also create a plan for how and when you’ll pay it off. You could time your automatic credit card or loan payments to coincide with paydays, or make manual payments at those points.
You’ll also want to have the money available to make those payments. Consider how you could cut back on extra expenses during January to free up room in your budget for the bigger credit card payments. Also, think about how you could align your money-saving changes with New Year’s resolutions.
Perhaps you’ll no longer buy sweets, will get a library card and borrow a few free books, or keep yourself entertained and educated by starting a free online course. Countless options could help you start the new year on a high note. We’re rooting for you to start the year on a positive money note.
Louis DeNicola is a freelance personal finance writer and credit enthusiast. You can find him on Twitter @is_lou.