Christmas is a time to celebrate family, friends and traditions. For many, however, it is also a time of great stress and large credit card debt. Be creative and start early to avoid debt. Explore ways to cut down, not out, the things you do and give. Children learn from the example we set. If our Christmas spending is more than we can and should afford, their expectations are often more than we can afford. Teach children that Christmas is more than getting gifts — it is sharing, spending time together and giving to those less fortunate.
To avoid debt this season, consider these tips:
* Set a holiday budget and stick to it. Include everything — gifts, wrapping paper, holiday entertaining, travel to visit relatives, office parties, etc.
* Update your net worth statement. It is easier to be realistic when you know the numbers. Your net worth statement should be updated at least yearly. Plan to spend no more than 1 to 5 percent of your net income for holiday spending.
* Keep track of your total expenses this year. Then divide the amount spent by 12 and save that amount each month over the next year. Establish a savings account just for holiday spending.
* Avoid purchases on a credit card unless you can pay off the full balance when the bill comes due. Also avoid buying on a deferred payment plan. It sounds great to have no payment and no interest, but interest usually accrues during the no-payment time period.
* Avoid purchasing extended warranties. Extended warranties often cost as much as the repair would cost. It is a great deal for the merchant, but not for the consumer.
* Avoid cash advances on your credit card. The fees are generally 2 to 4 percent of the advance. Avoid opening a new charge account for the 10 percent discount. Remember that your FICO score is worth much more than the 10 percent.
* Avoid using the blank checks that come with credit cards. Read the fine print carefully. Most have cash advance rates or are linked to a high interest rate loan.
* The gift card market is growing rapidly. These make an ideal gift if everyone understands the terms and conditions. Check the expiration date of the card. If it is not clearly marked, write it on the card so the recipient sees it. Check to see if there are fees associated with purchasing the card. Does it have maintenance fees or dormancy or replacement fees? Be sure there is a number for customer service or a help line that can be passed on to the recipient, and make surestores are conveniently located for the recipient.
* Remember, if all else fails, cash is a good gift. No one ever forgets cash, it always fits and it does not expire.
* Many stores offer gift cards or coupons for frequent shoppers and loyalty programs. Check your Christmas list for ways to turn these into gifts.
* Give stocks or bonds as gifts. It is a great way to teach family members about investing. Or donate to a person’s favorite charity.
* Send postcards instead of regular cards — they cost less to buy and mail.
* Draw names for family members and set a spending limit. Consider buying a household gift vs. individual gifts for extended families.
* Entertain at home versus eating out. Potluck dinners are often an affordable way for families/friends to spend time together.
By: Joanne Roueche - Nov. 2, 2007