Personal Finance Coach: Dametria Douglas on Creating a Holiday Spending Plan

By Dametria Douglas

As we near Halloween the holiday season is peaking over the horizon. Some of us are already mentally there, yearning for cool weather, pumpkin lattes, and holiday decorations. While we think about chilling out in footed pajamas with hot chocolate, we can also start to plan for a financially successful holiday season. What does that mean, you ask? Here are a few things to do as we quickly approach the end of the year.

If you love decorating and purchasing things for family and friends during the holidays, start by creating a spending plan. Planning ahead can make one of the biggest hurdles of the holidays much smaller: overspending using credit. Start by making a list of the things you wish to buy and the people you wish to gift. Decide how much you want to spend on each item/category.

Although there may be fun holiday traditions about shopping at the last minute, it can cost you opportunities to save money. Identify in advance what you need to purchase for which family members and friends so you can start your shopping early. By pacing your shopping across several pay periods you have more options for sales, lower prices due to longer delivery times, and cash purchases.

Unless you are diligent about paying credit cards off each billing statement, planning to use cash will keep you from paying for the holidays long after they have passed. Let’s look at an example of holiday spending without a plan or using cash. This hypothetical shopper spent $1,500 over the holiday season across three credit cards. With an average credit card interest rate of 16.22% (from https://www.creditcards.com/credit-card-news/rate-report/) and making the minimum payment of $25 for each card, the repayment plan would look something like this:

It would take an additional $599 and a total of six years to pay off the 2021 holiday season! And this is not considering the balances that may already be on the cards, nor continuing to use them after the holiday season.

Savvy shoppers look for sales and discounts to save money. However, one particular product is not worth the savings: store credit cards. Opening new lines of credit in a short period of time negatively affects your credit score. When looking at the factors that contribute to our scores, opening new lines of credit and credit history equate to 25% of our score:

So when the sales representative asks if you would like to open a card for that 15% discount, the resounding answer is NO!

The journey to financial freedom starts with small steps. Small changes in our normal behavior that create huge differences in our financial lives. When thinking about your holiday season and the gifts you wish for your family and friends, give yourself the gift of planning to create a debt free future for yourself.