How to avoid going into more debt this holiday season

When it comes to holiday gift giving, it’s common to want to go above and beyond for those you love. But the cost of goods — including gifts — is up and can leave many overspending or, worse, starting the new year with unmanageable debt.

Luckily, the holiday season isn’t over yet, and there are still ways to get into the holiday cheer and avoid the risk of future financial problems. Consider how some shoppers are approaching this season differently and what to do if you already have debt to address.

How people are minding their budgets while still celebrating

With the shock of high interest rates and the reality of a “silent recession,” many shoppers intend to rework their shopping habits this year and shift away from easy financing. Rod Griffin, Senior Director of Public Education for Experian, explains how macroeconomic problems serve as a key motivator for shoppers to tighten their spending.

“The $33 trillion numbers that we see, that may not even be the biggest motivator,” he starts, referencing the national debt passing the historic $33 trillion mark in mid-September this year.

“They’re going to be looking at their own accounts and at an individual level seeing that perhaps they feel like they may get overextended in debt.” On average, people carry $6,365 of credit card debt, according to Experian second quarter data. This is up 11.7 percent from the same time last year.

Cash and credit cards are the top choices

In response to the stress that many people feel, some have opted to stray away from credit shopping this year. According to a Bankrate survey, 52 percent of shoppers plan to use their debit cards to shop for holiday gifts, while more than 49 percent reported relying upon cash this season.

According to Griffin, shoppers are leaning on cash and debit transactions as a form of budgeting. Simply, he explains, “people are concerned about taking on more debt.”

He shares that shoppers are very aware of the increased cost of almost everything today. So, the choice to use a form of payment that won’t potentially cost you more in the future is a means of trying to manage debt.

Reasons for a cash-only approach to holiday shopping

A holiday shopper based in Colorado shared their choice to only use debit this season rather than pulling out their credit card.

“My spouse and I hope to buy a home this year or next,” Helen Wilbers shares. With a big purchase in mind, “we’re working hard to keep our credit scores as healthy as possible.”

For Helen, this keeps their credit balances and credit utilization ratios low, which then keeps their credit score up when house hunting season arrives. Along with that, Helen has been budgeting extra carefully this year.

“With mortgage rates still sky-high, every spare penny is going toward our down payment so we can reduce the amount we need to borrow,” he concludes.

Helen and other shoppers alike have the right idea regarding avoiding the risk of debt while focusing on future financial goals.

Make a list and check it twice

One of the biggest mistakes shoppers can make when approaching holiday shopping, shares Griffin, is impulse buying. Unsurprisingly, buying gifts on a whim can lead to overspending and potential debt problems in the future.

He has perfectly apt advice for avoiding a Grinch reputation while keeping your budget in mind.

“Be like Santa Claus, have a list and check it twice.”

This, he explains, can help you understand where your money is coming from, where it’s going and how much you can truly spend. Make a list of loved ones in your life, budget for each of them and follow that to a tee. This will ensure you don’t fall for winter sales, and instead only spend exactly what you plan for.

Another helpful tip is to remember that big box stores are not your only shopping option. Helen, for example, is taking the route of homemade gifts this season.

“Not only am I shopping with debit over credit, but I’m actually avoiding spending on gifts when possible,” Wilburs shared. Homemade gifts, like homemade pottery in the case of this gift giver, are a meaningful option that minimize cash costs.

How to manage current debt

If you haven’t started preparing for your year ahead and feel overwhelmed by the bills arriving when the ball drops on the first, Griffins’ advice is simple, “it’s never too late.”

Consider some tips to manage current debt to start the new year off better financially.

• The debt snowball. Starting by paying down your smallest debt and then increasing until you pay off your largest. As you pay off the smaller balances, you will have extra cash on hand to pay off your larger accounts.
• The debt avalanche. This payoff strategy requires you to consider the interest rates of each debt. Start by focusing on the debt with the highest interest rate, and then continue to the smallest. This dramatically cuts down on the amount of interest you pay and can help you save money.
• Debt consolidation. Here, you roll your debts into one. This can make paying your debt easier, and gives you the opportunity to pay less in interest. This is a good route for a borrower who feels confident in their ability to not fall back into using credit cards.
• Credit counseling. If you prefer assistance from a professional, working with a credit counselor can help you find a strategy that fits. If you go the route of a debt management plan (DMP), they will work directly with creditors to handle the payoff.
• Debt relief. Though it will cost a fee, you can also seek out third-party help in the form of a debt relief company. These companies help people work through their options, including consolidation, DMPs and debt settlement.

When shopping, think of your year ahead

Although the reality of high prices doesn’t have many silver linings, Griffin does share how higher costs have raised awareness for many people.

“We become more sensitive to your financial circumstance, we think about where we will be in the future and we start to focus on our financial goals,” he says.

Not only have people stepped back from credit this holiday season, but some have also been pushed to plan. For the first time in five years, according to Experian, more than half of people report having a financial New Year’s resolution to save more money.

Shoppers, says Griffin, are “feeling the pinch of increased costs, which is making them think about what they are going to do next year when they get that bill.”

This helped connect the dots for many shoppers and has encouraged them to think more critically about how they plan to manage their money in the coming year — with New Year’s resolutions to prove it.