The holidays are already here. It’s time for holiday music, decorations, and of course, gift shopping. If you’re like most Americans, this time of year isn’t just the most festive season. It’s also the most expensive season.
According to a study from MagnifyMoney, the average American added $1,230 in debt over the 2018 holiday season. That figure has increased significantly every year that MagnifyMoney has conducted the survey. In the initial 2015 survey, the average level of new debt was $986.1
Unfortunately, for many holiday shoppers, the additional debt can have long term consequences. Only 42% of shoppers said they planned to pay off the debt within three months. Twenty-seven percent said it would take five months or more, and 22% said they planned to only make minimum payments.1
Long-term credit card debt can add up. You end up paying not only for your purchases but also for accumulated interest. If you’re approaching retirement, that debt can be corrosive. Every dollar you spend to service debt is a dollar you can’t save for retirement.
Fortunately, you can reduce your level of holiday debt by planning ahead. Below are a few tips to get you through this holiday season.
Set a budget.
Budgets are always a powerful financial tool, but they’re especially helpful during periods of high spending, like vacations or holiday seasons. Take some time to write down exactly how much you want to spend on each person on your list. What is the maximum for each individual? What is the total maximum you want to spend?
Often, simply writing a budget is enough to control your spending. That number will be fixed in your mind as you do your holiday shopping. Be creative and look for ideas to find meaningful gifts without busting your budget.
Track your spending.
A budget is helpful, but it doesn’t mean anything if you don’t stick with it. Find a way to track your spending throughout the holiday season. For instance, you could keep your receipts and add up the totals. You could store your spending in a spreadsheet. Use whatever works for you, but track your spending so you can make sure you are staying within budget.
Be smart about your credit cards.If you must use a credit card, be smart about your strategy. For example, determine which of your cards offer the best rewards. Could you earn cash back? Or possibly accumulate travel points or other rewards that may offset some future cost? Also, consider consolidating your debt on a low-interest card so you can pay it off faster.
Don’t tap into retirement savings.
It may be tempting to take a small withdrawal from your IRA or 401(k) to pay for your holiday spending. However, resist the urge to do so. When you take a distribution from a qualified retirement account, you not only pay taxes, you also might pay an early distribution penalty if you’re under age 59 ½.
Additionally, you reduce your retirement nest egg. You’ll lose the amount you withdrew and also any future potential growth on those assets. Find other ways to pay for your holiday spending without tapping into your retirement.
Ready to tackle your debt and prepare for retirement? Let’s talk about it. Contact us today at Boston Independence Group. We can help you develop and implement a strategy. Let’s connect soon and start the conversation.
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