How to Make Merry Without Going Broke

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This week, Gail explains how to avoid tricks designed to get you to overspend this holiday season.

It is the “Mother of All Mall Days.” The day after Thanksgiving traditionally marks the start of the holiday shopping season. And for the increasing number of online shoppers, there is “Cyber Monday,” the first work day after Thanksgiving and the day many of us sneak in our Internet shopping.

Regardless how you do it, holiday spending significantly contributes to this country’s increasing consumer debt problem.

Depending upon which survey you care to believe, Americans are either: a) Likely to cut back on how much they spend compared to last year (so says The Conference Board, Credit Union National Association, and Consolidated Consumer Credit Counseling Services), or b) Likely to spend more (this from the National Retail Federation and Visa USA).

Aside from the obvious fact that you can pretty much get out of a survey whatever result you’re looking for based on the way you frame the questions, another reason for these two completely opposite predictions is that these surveys are very subjective. That is, they rely on consumers own self-evaluations.

If you’re feeling especially optimistic when get the phone call from the survey-taker, you’re likely to magnanimously respond that you are going to be more generous this year.

On the other hand, if you’ve got visions of lumps of coal dancing in your head because your kids have just decorated the walls with their crayons or your significant other has ticked you off, you’d probably say you plan to spend less.

Furthermore, since it’s human nature to want others to think highly of us, our answers are also influenced by what we think we should say. Which explains why, despite telling a researcher that we’re sticking to a budget this year, once the actual sales numbers are added up, they indicate we tend to overspend our budgets by 20 percent or more.

Nonetheless, the annual shopping survey conducted by the non-profit Consolidated Credit Counseling Services found that the No. 1 reason nearly 60 percent of us are trimming our holiday budgets this year is that we’re already up to our eyeballs in debt. Surprisingly, slightly more men than women cite this reason.

And 46 percent of those surveyed are still paying off charges they ran up this time last year! This number is even higher — 54 percent — in the Northeast.

In addition, 82 percent of us already expect to be paying off this year’s holiday debt well past March — a statistic that undoubtedly has credit card issuers jumping for joy.

And don’t even think about accepting those seemingly generous offers to “Take a Holiday From Your Credit Card Bill” and skip your December payment. “All that means is no late fee will be charged and the skipped payment won’t go against your credit report,” says Gary Herman, president of the non-profit Consolidated Credit Counseling Services.

If you accept this offer, you’re actually making a gift to your credit card issuer because interest will still accumulate. “It’s just another way to drive up the balance so the credit card company earns more interest in January,” says Herman.

While we’re on the subject of Trojan horse offers, avoid those tempting “10-15 percent off” come-ons for opening a store credit card account. These merchant cards tend to carry much higher interest rates and fees than bank cards.

What’s more, says Emily Davidson, communications director at for-profit, the 15 percent you save on your purchase “is going to be quickly out-weighed by the negative impact of opening the new account.”

If you want to make a large purchase that you know you’re going to take several months to pay off, Herman says you “may be better off putting this on a low-interest credit card you already have.”

He defines this as one with an interest rate of 15 percent or less.

In the long run, this will end up costing you less than “a 10 percent discount at the counter and getting hit with 21 percent interest over the next year.”

Keep track of your credit limit — both in total and on each card. A critical measure of how credit-worthy you are is your “credit utilization” or “debt-to-limit” ratio. It’s the percentage of your total available credit that you’re actually using. Racking up $1,000 in charges on a card with a $2,000 limit means your debt-to-limit ratio is 50 percent.

That’s a red flag to lenders, according to Davidson. “The lower you keep your utilization ratio, the better.” If you want a high credit rating, she maintains you should aim for this ratio to be under 10 percent.

It’s also important to know the limit on each credit card because exceeding it can trigger what Herman calls “excessive” charges.

“It can result in your interest rate being increased to 29 percent.”

In addition, he says the “over-limit” fee can run as much as $39 a month until the card is back below your limit.

Another trap for the unwary: Charging a lot of small purchases on your credit card knowing you’re going to pay them in full when your statement arrives next month. You only avoid interest on these charges if the card you’re using has a zero balance.

“There’s no grace period for cards with existing balances,” says Herman. “If you charge $50 worth of gas on a card that already has a balance, you pay interest from the day you pump it.”

A Helpful List

If you don’t want to start 2007 with a debt-induced hangover, here is my list of things to think about (warning to parents: Don’t let young children read this!):

1. There is no Santa Claus. You are not personally responsible for fixing this admittedly disappointing fact.

2. Decide ahead of time how much you can reasonably afford to spend. Include holiday food and decorations as well as gifts.

3. Make a list and check it twice. Don’t buy what isn’t on it. Merchants — including online stores — count on our lack of discipline. That’s why they put so much effort into enticing displays, “early bird specials,” and internet ads. Impulse purchases or “extra” gifts will quickly blow out your budget.

4. Re-read No. 3. Especially if you are male. 45 percent of men shop without a list, a sure-fire way to over-buy.

5. Once you determine how much you can or want to spend, convert this to cash and put it in an envelope. Use this to make your purchases. (Yes, I recognize that there is a risk of losing this money or having it stolen. I’m not suggesting you walk around with $600 in your back pocket. Just take what you plan to spend. Lock the rest in your car; you can always go back to the parking lot to get it.)

Paying for something with cash as opposed to a check or credit card changes the entire psychology of shopping. It makes you realize how much you’re actually spending. And every time you open the envelope you’ll have a tangible reminder of how much you’ve got left to spend. It’s powerful.

6. If you can’t come up with all of the cash to cover your holiday purchases, use a debit card. If you have to use a credit card, only charge what you know you will be able to pay off within a few months.

7. Avoid shopping when the “frenzy” is at its peak. It’s too easy to get caught up in the crowd mentality. This includes the day after Thanksgiving (a.k.a. as “Black Friday” *), the weekend after Thanksgiving, major advertised sale days, and Christmas Eve.

8. Even if you prefer to shop in person because all the decorations get you into the holiday spirit, research prices online before you hit the stores. If you find what appears to be a good deal on an item, print the the screen price and take this with you when you head to the brick-and-mortar stores. “Almost every store will match the online price,” according to Herman.

9. Whenever possible, look for freebies. Here’s one: Consolidated Credit Counseling Services has a free “Holiday Survival Guide” you can download. It includes additional helpful ideas to avoid the all-too-common post-holiday debt hangover, as well as handy worksheets for budgeting and keeping track of your spending. You’ll find it at: You can also order this by phone at: 800-728-3632.

10. Remember that for practically everyone on your list, the most precious gift you can give is yourself. Whether that’s offering new parents 10 hours of free babysitting so they can re-gain their sanity, taking grandma out for a special lunch, or giving everyone smaller gifts so you can afford that family camping trip in the spring.

Time is truly the most precious commodity we have. Use it wisely. Give it generously. And don’t forget to set aside time for yourself so you don’t lose the holiday spirit because you’re so caught up in holiday spending.

Let the holidays begin!


* There are two theories as to how the Friday after Thanksgiving got dubbed “Black Friday.” The financial school of thought holds that since the bulk of sales come in the last weeks of the year, retailers essentially lose money all year long (“run in the red”) and don’t start showing a profit (“run in the black”) until the holiday shopping season begins.

The sociological explanation is that that shopping on this day is such a frenetic, stress-inducing experience, it leaves you feeling terrible, or in a “black” mood.

Take your pick!

If you have a question for Gail Buckner and the Your $ Matters column, send them to:, along with your name and phone number.