Dealing with Christmas Debt

I just bought my first Christmas gift for next year – it was the perfect item for a particular family member! And it got me thinking about an all-too-familiar phenomenon: Christmas debt.

You know the scenario. You start out with a strict budget for your Christmas shopping (or Christmas craft supplies!) You discover that the $2.99 lilac yarn you were counting on buying isn’t anywhere on the planet, any more, so you have to settle for $7.99 yarn, to get the right color. Or that jewellery box you were going to buy Ashlie has gone, gone, gone. You end up buying her a gift that costs three times as much. And then there’s all the “little” things that would be “perfect” for so-and-so.

Before you know it, you’ve spent 3 times your budget, and you’re either up to your eyeballs in credit card debt, or you’ve shorted out your utilities or some other awful thing.

And The Worse Part Is…

I’m not even talking about “big spenders” – people who buy TV sets or PC’s for Christmas: I’m especially talking about people on very tight budgets, who have been as careful as they know how to be, and have a Plan. (Which, of course, goes out the window at the last minute, thanks to Christmas shopping confusion, exhaustion, lack of time, lack of availability and 101 other reasons.)

That’s why now is a good time to start buying Christmas presents. If you can’t afford or don’t want to buy them all at once, try shopping for one a month. It’s fun that way – you can really focus on just that one special person, instead of trying to do a whole list (and discovering that you got Uncle Tim two presents, and Aunt Doris none). The stores won’t be crowded. You’re more likely to find unique gift possibilities (and less inflated prices).

Christmas Credit Tip

I came across a great holiday debt reducing tip at How To Manage Money Tips for those who do use multiple credit cards, and run up high amounts at Christmas. (This tip is especially relevant to you if you have already done that, and are now suffering the consequences.)

Consolidate your balances by moving them all to one credit card – the one with the best rate.

If you don’t want to do that, choose the card with the highest interest rate as the one to pay off first – pay the minimum payments on all the others till you’ve “killed” the big one. Not only will it feel darned good when you finally see that zero balance and stop paying that nose-bleeding interest, it’s a proven tactic to killing off credit card debt much more quickly than trying to service all of them to the max at once. Repeat the process with the next highest-interest card, and so on.

(Of course, this only works if you don’t add more debt. If you do need to use a credit card occasionally, add purchases only to the lowest-interest one.)

Reality Check: How It Really Plays Out…

My own way of creating a personal money tree and making sure I’m not caught short and put in debt for Christmas is a very weird one: I buy a pre-paid Mastercard credit card from my bank (not from one of those pre-paid companies – you’ll run into problems if you go that route!) Your bank may not advertise it, but they will have a pre-paid Mastercard or VISA – just ask!

I load it with $10 here, $5 there – and I don’t spend it (unless I come across the perfect Christmas gift for someone, in July). I add to the balance easily by phone banking, and keep the card in a safe place (not in my wallet). By the time I discover I haven’t crafted the gifts I was going to make, and I haven’t been able buy a gift every single month, I have a nice little nest egg to spend, come December, when I check the final balance on that credit card.

The biggest bonus? It’s all “extra” money – it’s not coming out of my regular budget. And it feels wonderful to have that reserve to play with, for my favorite people!

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