Heading Off Holiday Debt

Do the holidays put you in debt?

Many shoppers enjoying the spending party will wake up next month and face a hangover in the form of post-holiday bills and increased debt. And these bills and debt come at the worst time for many folks because their cash flow is also reduced by full deductions of FICA taxes and retirement plan contributions.

For some, this is an accepted part of their personal financial cycle. For others, we offer some tips gathered from shoppers and experts that could help ease the spending headache before it sets in.

Make a List

For those of us who still believe in Santa, we know he not only makes a list, but he checks it twice.

This is the most frequently-given advice by experts to control holiday spending. And the shopper surveys seem to point out that this oft-repeated message is still largely ignored: Only 40 percent start shopping with a list while 49 percent browse until they find the right item.

Browsing without a list is a budget-minded shopper's enemy; you're more likely to buy additional items on impulse or spend more than intended. Make a list of who, what and how much you plan to spend and also include the method of payment (cash, check or charge). Think of this as a holiday spending plan and stick to it.

Try using an online shopping list calculator that helps you organize your list, calculate the total and lets you print it to take with you when you shop.

Shop Online or by Catalogue

It appears that some shoppers are budgeting their time as carefully as their money. Smart shoppers use the Web to browse for gifts and compare prices. Some will then order the gifts either online or over the phone.

The payoff is time saved by avoiding traffic jams, parking lot hassles and crowds at the mall. You'll also save money by avoiding eating out, which is commonly an added expense of holiday shopping trips.

Pay with Cash/Checks/Debit Cards

Financial advisers are always critical of using credit cards to finance holiday spending.

On the other hand, there are two situations where using credit cards can be a good thing: using plastic to earn reward points for planned spending and taking up a retailers offer for a 20 percent discount on all purchases that day when charged on their newly opened charge card.

If you do this, be sure to pay the balance in full when you get the credit card bill or the rewards and discounts will be offset by expensive finance charges (which will typically be north of 15 percent, the national average). My rule: if you can't pay for it in full in 30 days, then don't buy it!

Use One Card

If you must use a credit card, carry just one card and use it for all of your purchases. Spreading purchases on several cards makes it easier to overspend and rack up more debt. That's because a few hundred dollars on several cards doesn't sound as serious as the entire debt on one account.

If you must carry a balance, apply for a card with o fees or rewards. These cards typically offer the lowest interest rates. For example, if you charged $1,500 and carried the balance for a year, you'd save $180 in interest charges if your interest rate was 9 percent versus 21 percent.

Check out www.bankrate.com for a list of some of the lowest rate cards in the country.

Start and Finish Early

Last-minute shoppers pay the price for their procrastination several ways. They don't have the time to look for sales, be selective or price compare. Having the time to do this can save as much as 20 percent on some purchases.

Also, late shoppers tend to choose premium delivery services such as next-day delivery as opposed to two- to three-day delivery. Compare this cost difference: $3.50 for two- to three-day delivery versus $11.50 for next-day delivery. That's almost four times more!

The same advice applies to your tax return, too. Expecting a tax refund? Many more taxpayers will get a refund due to new tax credits and deductions doled out over the last two years. Getting your tax return prepared and filed as early as possible next year will speed up your refund. Use the refund to pay off credit cards and other lingering holiday debt and bills and reduce expensive interest charges.

Save Receipts

No matter how well planned your shopping is, it's inevitable that some gifts will need to be returned or exchanged. Save your receipts for at least a month after the holidays as these make the return process easier.

Also, most stores mark down merchandise significantly and only credit you the sales prices unless you have the receipts to prove you paid more. Imagine getting back $25 for a sweater that you charged for $50 on your credit card at 21 percent interest. It's enough to make a person say, "Bah Humbug!"