Two young men standing outside laughing and enjoying holiday shopping

5 Ways to stay out of credit card debt during the holidays

The news about American use of credit cards can sometimes surprise us.

For example, despite a yo-yo market and high levels of unemployment over the course of the pandemic, consumers made some smart choices with regards to credit card debt during that time. In fact, from Q3 2019 to Q3 2020, credit card balances fell 24%, according to data from Experian.

Since then, spending has slowly been bouncing back. With the holidays around the corner, it’s important to stay savvy regarding your finances. Research shows that the average American spent between $1,000 and $2,000 on holiday gifts alone in 2020. Luckily, a few changes to your spending here and there can make a big difference.

Adjustment 1: Make a gift list

Rather than buying a gift for everyone you know this year, consider making a list that includes only those people who mean the most to you. For example, if you bought a gift for everyone in your neighborhood last year, this year you might cut back and spend only on the neighbor you interact with the most.

Adjustment 2: Consider a gift exchange

Especially for family or groups of friends, a gift exchange can be an easy way to save some cash, too. Focusing on just one person within a big group also allows you to put more thought and creativity into what you give. Make it even more festive by putting a holiday spin on your get-together, like organizing an ornament exchange where people swap (or make) holiday ornaments.

Adjustment 3: Say no to credit

Consider spending from a cash only budget this holiday season. Voya's budgeting calculator can help you categorize your spending into 50/30/20 buckets (50% for your needs, 30% for your wants and 20% for savings), so you can determine how much cash you actually have to spend on holiday items. With anything leftover, set up a new savings account — call it “Holiday Fun” for extra motivation — and funnel extra cash directly into it.

There may only be a few months before the holidays this year, but if you continue saving into next year, you'll have even more to spend. For now, consider borrowing from yourself from another savings account if you have one to avoid interest charges when using your credit card. Then, make a plan to pay yourself back within a certain amount of time.

Adjustment 4: Bargain hunt or get creative

Making the end of the year exciting doesn’t have to translate into overspending. For example, shop early (before holiday pricing kicks in), bargain hunt (vintage stores have great options!) and/or make something from scratch (your friends have always coveted those bowls you made yourself in pottery class, after all).

Having groups of friends or family go in together on an experience, rather than a physical gift, is another option. Outdoor adventures like ice skating, skiing or tubing are fun ways to spend an afternoon. If your experience with friends can include volunteer work, you’ll not only be saving money, but you’ll feel wonderful doing it and you may even create a tradition that lasts for years to come.

Adjustment 5: Save the change

Saving the change you get from gift purchases can add up quickly, especially if you take that change and put it into your “Holiday Fun” savings account to be spent on gifts and experiences for next year. If you already have a credit card, consider some additional ways to use it responsibly for more savings. For example, use any rewards points or cash rewards to put towards gifts. You can often buy gift cards at bargain rates, which you can then turn around and use to purchase gifts, too. Some cards also have a price protection feature, which allows users to get a refund if the price of an item they purchased drops during a certain time.

The holidays are meant to be a time to get together and celebrate with our loved ones, but financial expectations can add a layer of stress to them, especially if you end up carrying credit card debt from your holiday spending into the new year. The best way to stay out of debt and to stay on track to reach your financial goals is to have a budget and a cash savings plan. Then, use some of the above ideas to save even more money for next year. This will allow you to give thoughtful gifts without having to go into credit card debt, plus you'll be giving yourself the biggest gift of all — financial health.   

This information is provided by Voya for your education only. Neither Voya nor its representatives offer tax or legal advice. Please consult your tax or legal advisor before making a tax-related investment/insurance decision.