This post is sponsored by Lexington Law.
The holidays are coming up fast and there’s one thing that’s been on my mind lately: my holiday budget. It’s so easy to overspend during the holidays. I myself have gone over budget before during the holidays. Not only did I have to figure out how to get myself out of debt, but I had to learn to make a sustainable plan to avoid doing it again next year.
I want to share with you how I’ve learned to stay out of debt (or at least not accumulate any more debt) during the holiday season. Plus, I have a few tips and tricks to share with you that might actually help you improve your financial situation by the time the holidays are over. And finally, I’ll also walk you through some steps to take if your credit has taken a hit during the holidays.
How To Stay Out of Debt This Holiday Season
1. Plan your gift list now.
And by now, I mean whenever you are reading this. It might be spring time, but when it comes to budgeting for the holiday season, it’s never too early to get a handle on who is on your gift list. But even if it’s the beginning of November, it’s still the right time to figure out who you need to buy for.
Keep a running list somewhere accessible, like on your phone, of your gift recipients. You might have a small list or a big one, but knowing who exactly is on it will help you stay on track.
People who might be on your list include:
- immediate family
- new babies/kids
- your partner
- extended family
- special people in your life like your children’s teachers, daycare provider, apartment leasing staff, your boss, etc.
- A “secret santa” gift exchange
Your list might change throughout the year, and that’s okay! The main idea here is to have a good idea of who you will be purchasing for during the holiday season.
You can also start sketching out what you plan to buy each of these people. You don’t need to know exactly yet, but if someone in your life loves makeup for instance, you can keep an eye on sales and holiday sets for those kinds of items. Make sense?
2. Know your budget.
One of the most important steps to staying out of debt this holiday season is to know your budget. Do you have a handle on exactly how much you have to spend? Buying gifts for many people can quickly get out of control and in this busy season, it can be hard to keep track of your spending.
One thing I like to do is have a line item on my budget that is strictly for gifts. I put money into this fund every month so that when the holidays come around, I know exactly how much I have to spend.
When you know your budget and your gift list, you can then start mapping out strategically how much you intend to spend on each person.
I’ve created a spreadsheet to help you manage your own budget easily! It’s completely free to download and use — no sign up required. Click here and follow the instructions to save your copy.
3. Do a “secret santa” gift exchange.
I know so many people who implement this tactic every year to keep the budget reasonable for everyone! This way instead of spending a small amount on many people, you can get one person a really nice gift. It’s better for the budget and better for the recipient too.
For example, one of my friends is doing this with her family members for the first time this year because their family has grown from new marriages and new babies. It would be unnecessarily expensive for everyone to give lots of gifts.
Another one of my friends does this with a group of her friends every year. With a group of 10 or so people who regularly hang out, they do a party every holiday season where each person brings a dish and they exchange gifts. This way they focus on spending time together and everyone stays on budget.
If you have a group of friends like this in your life or a large family, a “secret santa” gift exchange might be a better way to go than exchanging individual gifts.
4. Don’t be tempted by advertised deals with a new credit card.
Around the holidays many stores will try to lure you in to open a new credit card with them by offering steep discounts on your purchase. While it might be tempting to get an extra 40% off of a large purchase, these store credit cards often have high interest rates where these companies often make more money back from you in interest than you would have spent to begin with.
Not to mention that many new inquiries on your credit report can hurt your credit score. It’s probably best to avoid opening new lines of credit during this time of year. You don’t want to forget that you opened a card only to forget to pay it off or end up with a surprise bill in a few months time.
5. Make your payments on time.
When it comes to the holiday season we’re often all very busy. Our calendars fill up quickly but that’s no excuse to neglect your finances! Make sure to put your credit card payment dates on the calendar ASAP.
Late payments can have a huge impact on your credit score. In fact, your payment history makes up 35% of your credit score so even missing one payment could bring your score down.
6. Don’t spend more on a credit card than you can pay off.
Credit cards are useful tools to build your credit as long as you use them responsibly. But if you don’t have the cash to pay off your credit card balance, you’ve spent too much.
Credit utilization makes up 30% of your FICO Score which is what most lenders use to determine your financial trustworthiness. Having a utilization ratio above 30% can bring your score down and jeopardize your ability to borrow money for things like a home or car. It can even limit your ability to be hired and limit where you are able to rent.
What to do if your credit has taken a hit after the holidays:
If you find that you went over budget and are concerned about the impact on your finances during the rest of the year as well as your credit, there’s a few steps that you can take to start improving your financial situation.
To figure out where you stand financially, you can check your credit reports at annualcreditreport.com. There are also a few different ways to keep tabs on your credit score, which you can learn about here.
1. Make a debt payoff plan.
The first thing you’ll need to do is make a plan to get out of debt. Our friends at Lexington Law suggest going about it like this:
Because your credit card payment history and balances can have such a substantial impact on your credit score, ensuring you pay your debts off in a timely fashion is critical. Decide which cards have the highest balance and the greatest interest rate, then concentrate your resources on these accounts.
Also consider that not all debts are created equal. There are several options for prioritizing your debt within your debt payoff plan. Out of these strategies, consider which option works best for you and your financial situation:
- Pay off the card with the lowest balance first
- Pay off the card with the highest interest rate
- Focus on the card with the highest utilization ratio
Your credit card with the highest interest rate is most likely going to cost you the most in the long run. That interest is compounding which is making your balance higher — often by the day. Start paying these cards down with extra cash as soon as you get it. That might mean weekly or even daily payments until the balance is eliminated.
2. Cut back on your spending.
As part of your debt payoff plan, you’ll likely have to figure out where that extra money is coming from. This means you’ll likely have to tighten your budget up in other areas.
Some things I suggest doing are a no spend challenge or a pantry challenge (eating only from your pantry/fridge for a week). You can also return anything that you have a receipt for that you don’t want (like a gift that doesn’t suit you), sell things that are sitting around your home that you no longer have a use for, or trade in gift cards to places you don’t shop for cash.
Additionally, you can start working towards making more money. I created a guide to help you do so here!
3. Seek help.
One of the best things you can do for yourself is seek help if you need it.
If you are struggling with low or poor credit, don’t give up! If you do find any inaccuracies or unfair negative items on your credit report, I recommend reaching out to the credit repair professionals at Lexington Law for a free consultation. After the initial consultation, if you then decide to move forward with Lexington Law’s credit repair service, you’ll pay $14.99 to pull your full credit reports from TransUnion, Equifax and Experian. You won’t be charged for additional services for five days afterwards. You can read more here about how the credit repair process with Lexington Law works.
It’s always worth the effort to improve your credit and your financial situation.
Related: How To Budget To Improve Your Credit
While the holidays are a cheerful time of year, they can also be an expensive time of year. And while we may not intentionally go into debt or jeopardize our credit, high balances and low credit scores can come as result of well-intentioned gift-giving.
There’s no time like the present (pun intended) to make a plan for your gift shopping to stay out of debt this holiday season.
And don’t forget to make or download a copy of this free spreadsheet to track your spending!