Dollar Wise: How to stay out of debt during the holidays
Written Pamela Yip, The Dallas Morning News
To say budgeting is important this holiday season is an understatement.
The economy is reeling, taking with it thousands of jobs. That means every dollar spent has to count more than ever.
If you've lost your job, it's even more critical to toe the financial line.
"Establish a discipline and not be impulsive about things," advises Martin Durbin, president and chief operating officer of First Command Financial Services. "People buy things they can't afford long term, and they dig a hole they can't get out of."
"My main suggestion is to change our attitudes toward giving," says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling. "Don't try to keep up with the Joneses, and don't even try to keep up with yourself. It is likely that your financial situation last year was quite different from today, so don't try to imitate that holiday season in 2008."
The first step, experts say, is to be upfront with your family about the finances, but don't quash all your children's holiday hopes.
"Set expectations with the family," Mr. Durbin said. "We don't expect lumps of coal, but it's not about the gifts. It's about family being together."
It's critical that you gain your family as allies in this effort or your plan to be frugal will fall apart.
"If we can discuss it around the dinner table, each member of the family will have an opportunity to express their idea and what they think is important to them," said Dave Brennan, president of Brennan Financial Services, a Dallas investment firm, and author of Wishing Won't Do It: Financial Planning Will. "It's important that the family has a complete understanding that we only have so much money, and it's important to budget just like a company."
Charge ahead with cash only
Set a dollar amount for each holiday spending category by looking at how much you spent last year.
"Using last year's figures, you can create reasonable spending guides for each category," Mr. Durbin said. "By setting aside cash for your favorite holiday traditions, you can celebrate without breaking the bank."
Cash is king now, so limit your use of credit cards.
"Your gifts should be proportioned by what you can afford, not by what you have access to buy," the Institute of Consumer Financial Education said. "Most of us have access to much more credit than we can ever repay in a timely manner."
Determine what you can afford by how much actual money – not plastic money – you can spend toward the holidays.
If you must charge, don't charge more than you can pay off in the first three months of next year, Ms. Cunningham said.
"Doing otherwise will negate any good buys you may have found," she said. "If you carry a balance from month to month, there is no grace period. In other words, interest begins accruing the moment you make the purchase."
Think about the total cost of what you're buying, including any interest payments, not just the short-term cost.
Also, be careful of offerings from retailers that let you buy something on credit and not have to pay finance charges until early next year.
When they say, "No finance charges until February," the interest typically accumulates the whole time. That's a good deal only if you pay off the bill before the due date.
One way to avoid holiday credit card debt is if you see something you want, ask the retailer whether it has layaway, which is making a comeback because of the tight credit environment.
Layaway lets you put a purchase aside without having to pay for it in full upfront. You make payments over time for the items you've reserved and receive your product once your order is paid in full.
But understand the terms and conditions, and fees.
Make your list, check it twice
Keeping track of your spending will keep you from going over the edge during the holidays.
"Make a list of holiday categories and record all your purchases the same day, either in a simple electronic spreadsheet or with a pencil and paper," Mr. Durbin said. "Otherwise, that receipt – and your memory of the purchase – may disappear."
Keep a laser-sharp focus on your shopping goals. "When you go to the mall, act as though you're on a reconnaissance mission," Ms. Cunningham said. "Get in and get out."
Avoid impulse buying. Make a list before going to the mall. It will help you avoid impulse purchases.
"During the holiday season, it is easy to get swept up in the many sales and events that encourage you to buy, buy, buy," Mr. Durbin said. "But before you hit the checkout line, think about whether you will appreciate those purchases after the holidays are over."
You don't want to be paying for this year's purchases deep into 2009.
This year, making memories instead of debt should be the mantra for cash-strapped families. Consider handmade gifts, which will carry more meaning than store-bought presents.
"Christmas will be more important this year than it ever has been because it's now down to the emotional meaning of Christmas, not the materialism," Mr. Durbin said.
Ms. Cunningham has a special message for consumers who have been laid off:
"I'm begging those who have lost their jobs to not live off credit cards, and this will have to include Christmas," she said. "People are well-meaning. They think things will get better tomorrow. But in this economy, tomorrow may be very far off."
Take a look at last year's holiday expenses. If you found yourself scraping by in January, make a plan to reduce holiday spending this year.
Set a dollar amount for each holiday spending category –gifts, party supplies, clothing, decorations, travel costs, etc.
Let your family know the budget. Gathering input from your family on ways to save is a great way to reduce expenses.
Make a list of gift recipients, and check it at least twice . Consider lower-cost items, such as a handmade gift, or a gift drawing for less immediate family, friends and co-workers.
Avoid holiday impulse purchases.