Ask John: Avoiding Holiday Debt

Hi John, I keep seeing stories on the news about holiday debt and how to avoid it. I'm going to shop and I'm going to buy something, there's no debate there. But I know I should control my spending. Any hints?

I love this question! Raquel admits that she’s going to drop some cash over the next few weeks. Hey, who isn’t?  In fact some people are predicting that we’ll spend, on average, over $800 this holiday season.

Raquel recognizes that she’s going to spend but she’s still trying to be careful about how much she spends, an important distinction.

I have five pieces of advice for Raquel this yuletide season:

1. Don’t fall for the in-store financing offers. The retailers are hurting this year, so many of them are offering special promotions such as a 20% discount if you’ll sign up for their credit cards. Don’t do it! The interest rates are always very high regardless of your credit scores and if you start rolling balances month after month the amount you owe will skyrocket.

2. If you use credit cards, then only charge an amount that you can pay off in full by the end of January. If you want to buy a house or a car next year then it’s important that your credit scores are fantastic; and that means not having a lot of credit card debt. If you know you can only write $400 worth of checks in January to pay off holiday gift shopping in December then limit your spending to $400. Imagine how good you’ll feel when you get your bill in February and the balance is $0.

3. Watch the frenzy shopping. I might be too late with this piece of advice because according to what I’m seeing on television everyone lost their minds the morning after Thanksgiving. Of course, I’m exaggerating but one of those dangerous practices is to shop when you’re desperate to buy gifts and not thinking straight. It’s like grocery shopping when you’re starving.

4. Make a list and stick to it! This is hard because retail marketers are so aggressive. I see many examples of people going to the mall with the intention of buying one or two gifts and walking out with six or seven, many for themselves. Your best bet is to make your list at home, away from the influence of the bright lights and colorful decorations, and then stick to it!! Shopping with blinders on is a smart financial move.

5. Think about making your own greeting cards. I think spending $4.99 for a folded piece of cardboard with some hokey holiday saying printed on it is just plain crazy. If you buy 10 cards you could easily spend $50 or more.  Save the money and use one of the many software programs that allow you to create your own cards. They’ll pay for themselves in less than a year, I promise.

There you have it. My top-5 tips for avoiding holiday debt. If you can incorporate even a few of these suggestions into your holidays, you’ll likely be jumping for joy when you are debt-free in February.

And remember, if you are already thinking of your New Year’s Resolutions please don’t forget to add improving your credit health to the list. The borrowing game has changed because of the recent credit crunch and mortgage disaster. Lenders are demanding better credit from their applicants. Don’t get caught in a jam by depending on bad credit scores. Instead, check out my new book, You’re Nothing but a Number. It has all the information you need to start working on your credit.

If you have a comment for John or would like to ask him a question then please feel free to drop him a note at AskJohn@credit.com. Please be sure to add AskJohn@credit.com to your list of approved email addresses or his response might end up sitting unread in your junk mail folder.

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