Every year, when November arrives, I start to get stressed out about holiday spending. Brands enter my inbox with deals that seem too good to be true, and my list of people I want to buy gifts for always ends up long.
I always intend to plan ahead and save for holiday spending throughout the year, but I end up using any disposable income for other financial goals, like growing my emergency fund or staying out of credit card debt.
Even though I’ll attempt to limit how much I buy for myself before the end of the year, I have to spend money on presents for people in my life that deserve something special.
Promotional offers on credit cards often come with an interest rate increase when they end. Sitthiphong Thadakun / EyeEm / Getty Images
Certified financial planner Shinobu Hindert says that people often succumb to spending mistakes during the holiday season because it’s a busy time of year, but it also feels good making other people happy.
“You can overlook your budget and go for that one extra gift, but do this often enough and it can put a financial burden on your plate as you enter the New Year,” she says. “Lack of time can restrict bargain hunting and have you pay for extras like faster shipping.”
As I took a closer look at my finances, I realized that it wouldn’t make sense to drain my savings account for holiday spending and wondered about other payment strategies to use instead.
However, Hindert explained how some common spending strategies might cost more than they seem. Here were the five she said to think twice about this holiday season.
1. Buy now pay later makes it exceptionally easy to overspend
A big financial goal of mine is to continue to avoid credit card debt as much as possible. That’s why the buy now, pay later (BNPL) options seem attractive. Hindert explains that these plans split your payments into smaller, equal installments.
“Generally, they have minimal fees and interest or no interest and no fees,” she says. “You get to buy the item now and don’t have to deal with double-digit interest on your repayments.”
However, Hindert says that because BNPL plans make it easy to grab items you want now, it can lead you down a slippery slope when you start borrowing money to buy items on your wish list or gift list.
“These monthly obligations can begin to add up quickly, and your other bills are going to continue to come in,” she says. “Think intentionally about how you want to use your money at the end of each month. Set a budget and limits when you’re borrowing money.”
2. Personal loans can take years to pay off
If you want to pay for items with cash this holiday season but find that you’re running low on disposable income, there’s the option of taking out a personal loan. With a personal loan, you can borrow a one-time payment of cash and pay it back, plus interest, on a monthly basis.
While Hindert says this could seem like a more attractive option than taking on high-interest credit card debt, it does come with a downside.
“If you take a personal loan out at a high interest rate, like 8.5%, you’re left with the burden of paying this down,” she says. “Because this could take a while, the items you purchased through the personal loan may no longer be worth what you paid for them by the time you’re done paying off the loan.”
3. New credit cards are often much worse after promotional offers end
It can be tempting to open up new credit cards during the holiday season, especially if there are bonus cash-back or reward offers. I was thinking of opening up a store credit card at a retailer I love and plan to spend a lot of money this holiday season.
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However, Hindert says to remember that the promotional offers that often come with a credit card, like no interest for six months, often increase their interest rates when the initial term is over.
“Credit cards often hike interest rates into the double digits,” she says. “Even when you are making the minimum monthly payments it could take you years to pay off the debt entirely because of the compounding interest.”
4. FOMO makes deals seem overly important
One of the biggest reasons I often blow through my holiday spending budget is because the deals this time of year seem so great. But Hindert says it can be a spending mistake to think that if you don’t buy something now, you will never see a deal like that again.
Rather than thinking I need to buy everything for everyone right now, Hindert recommends having a specific strategy to stick to.
“Make a list of what you need versus what you want,” she says. “Set a realistic budget that you feel comfortable spending. Once you’re done with your holiday shopping, if you have money left over in your budget go after your want list.”
Consider other expenses before the holiday season
One of the biggest mistakes that I’ve made in previous years was thinking I had more cash to spend on holiday gifts than I really did. I forgot about saving up for taxes and planning for recurring expenses, like utilities and grocery bills, that can be higher during the holidays if you plan on entertaining or hosting.
Hindert suggests being careful of this so you don’t start off 2024 feeling like you’re behind with your financial goals.
“You want to build momentum with your finances and confidence, because it builds on itself throughout the year,” she says. “Reflect on your spending habits over the last few years during the holiday season and how that impacted you the following year. Making time and space to intentionally think about how you want to spend your money will allow you to make financial decisions from a place of confidence.”
She even suggests being transparent with people in your life about your holiday spending and savings.
“Tell friends and family about how you’re going about shopping and budgeting this year. You can help other people stick to their spending limits and encourage financial awareness within your community,” she says.
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