Consumers spend more money during the holiday season -- that is, the three months before New Year's -- on presents, travel, and entertaining, than at any other time of the year. And much of that buying is done on credit, at high interest, which can lead to major debt and finance problems for months or even years to come. To keep your cheer intact before and after the holidays, we've compiled a few tips that will help you be generous without inviting disaster.
If you want to save money, this is the time to make your resolutions -- not after the New Year.
Cut your gift list. The easiest way to reduce how much you spend during the holidays is to exchange gifts with fewer people. You might even talk to some people in advance and agree that you won't exchange gifts but will get together to do something you both enjoy -- such as taking a stroll downtown to see the holiday lights. Or, some families agree to a limited gift exchange, with each person responsible for buying for only one other person (rotating randomly every year).
Find alternatives to purchased gifts. Be creative: Homemade treats, a coupon for your services (such as babysitting, yard maintenance, or whatever your skills include), a family photo, or a tax-deductible contribution to a charity are all thoughtful gifts.
Make a budget. Once you've figured out who you want to buy gifts for, determine your overall budget and decide how much you want -- and can afford -- to spend on each person. This will help you avoid the temptations of last-minute impulse buying. For information on budgeting in general, see Nolo's article Budgeting for Personal Financial Planning.
Spend within your budget. Stick to your budget. This takes tremendous discipline, and you may want to enlist help. Shopping with someone who can provide a voice of reason is the best way to keep from overspending.
Get started early. Good deals are often available before the official holiday shopping season starts -- supposedly on the day after Thanksgiving, though it seems to get earlier every year. Prices are usually lower, you have more time to take advantage of online or mail order bargains, and you can find some great deals on models that are being phased out toward the end of the year.
Look for good gifts that are also good buys. Before you hit the mall, learn about the features and options available on particular products, especially expensive items such as cameras, video equipment, sporting goods, stereos, and computers. Read up on different makes and models so you won't be swayed by the more costly recommendations of zealous (and commission-hungry) salespeople.
Once you've narrowed the field, look for bargains. Studies have shown major price variations -- often 50% or more -- in the same area for identical products, especially audio-video and computer equipment. Don't assume that prices are always lower in catalogs or on television shopping channels, no matter what their ads claim.
Know the store's return policies before you buy. Because sales help is often transient during the holiday season, and temporary employees may not be fully informed of store policies, ask the clerk to write the refund policy on the receipt if it's not printed there.
Avoid buying unnecessary warranties. Resist the pressure to buy an extended warranty or service contract for most products. Extended warranties often duplicate the product's existing warranty and are rarely worth the extra cost.
Keep records of all your purchases. To make sure you stay on track, keep all sales receipts. Receipts will also come in handy when monitoring your credit card statements. It's nice to get a gift receipt for your recipients, too -- they'll enjoy the gift even more if they can trade it in for something that fits or suits them better.
When it comes to paying for your holiday largesse, follow this advice:
Pay by cash, check, or debit card. The best way to avoid finance charges from credit card bills is to use your credit card only when you have to. Pay by cash, check, or debit card whenever possible.
Pay off your credit card bill quickly. Avoid large interest payments by paying off your credit card bill in full. If you can't do that, pay as much of the bill as you can each month.
Consider transferring the balance to a low-interest card. Look for low-interest credit cards to which you can transfer your credit card balance. You'll save yourself a bundle if you pay off your $1,000 balance at 6.9% a year rather than 18% per year. But be careful. People who constantly juggle cards often get into financial trouble. And too many open and closed accounts may lower your credit score. For information on credit cards and credit card debt see Nolo's Banking & Credit Card area.
For more information on budgeting and dealing with debt, check out Solve Your Money Troubles: Debt, Credit & Bankruptcy, by Robin Leonard, J.D., and attorney Margaret Reiter (Nolo).