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Monday, January 12, 2015
Paying off Christmas can cost you more than you think!
Christmas is barely over and the bills are about to come rolling in. How much did you spend? I will admit that I spent more than I had planned, even though I had a spending plan in place. My biggest pitfall was Christmas dinner for 18- it was our first in our new home and I wanted everything to be perfect- from the decorations (inside and out) to all the food on the table. It did not help that I got sick and had to cancel dinner for 18 people! I paid cash for everything and did not use credit cards so I only have a couple of lean weeks until my next payday. How long is it going to take you to pay it off? More than half of Americans will have Christmas paid off by the end of January. A little over half of us pay cash or use credit cards and pay them off right away. Some use credit cards to get rewards for their purchases even though they have the cash. For the rest, Christmas, on credit will cost more (in interest) and take months to really be over.
A 2013 survey from Credit Donkey (www.creditdonkey.com), a credit card comparison company, indicated that of those who use credit and do not pay the bill off by the end of January:
- 23% will pay by the end of tax season,
- 13% by the end of the summer,
- 6% by the beginning of the next holiday season and
- 6% past the end of the next holiday season.
When taking that long to pay off the bills, you can spend so much more than the original gift is worth.
There are several different strategies to pay down that credit card debt.
- Pay more than the minimum monthly payment on your credit cards. Paying only the minimum monthly payment for your Christmas purchases, it will take you four years to pay off this Christmas. The average American would need to add $64 dollars a month to their minimum payment in order to pay off their Christmas credit debt before next Christmas. The sad thing is, when taking that long to repay this year's holiday expenses, there is no opportunity to save for the next year. So the cycle tends to repeat itself.
- The ideal solution is to pay off the Christmas expenses as soon as possible and then take the money you would be paying on the credit cards and deposit it into a savings account. Come December, you could have all or most of the money you need for the 2015 holiday season.
- Budget for next year-NOW. For those who paid cash for holiday spending, use this strategy to avoid the annual drain on your monthly budget. Total up all your expenses from the past holiday season. In addition to gifts, make sure to account for decorations, additional food, travel, and clothing for events, anything that was related to the season and, generally over and above your normal monthly budget. You may be surprised at the total. Divide that amount by 11 (now through November) and save that amount every month in a savings account. Come December- you will have all the money you need when the spending season comes around. If you decide to use a rewards credit card for your holiday purchases, be sure to check the balance often and pay it off at least by the end of the month if not more often.
The internet is filled with all kinds of savings plans that will "change your life". There is no credible research about which savings plan works the best. However, research does prove that changing behaviors, i.e. creating new positive habits, is the key to reaching your financial goals. Whatever method or savings plan works for you is the one you should work on.
What is your favorite method of managing holiday expenses without breaking the budget? Post them in the comments below.