Seemingly every media outlet is beating the drum over high holiday-related goods and services costs.
That’s as it should be. After all, giving consumers a sense of what their holiday budget is up against come December is highly helpful, especially as the cost of goods rises in a high-inflationary economy.
What’s less apparent in the public square is the painful impact of high holiday prices on individuals and on entire households.
When airline prices climb 42.9% in late 2022 as reported in a new Bankrate study, or when the cost of shipping a gift is up 13.9% or gasoline costs are up 15%, those aren’t only abstract figures for economists to mull over.
They’re real numbers that can mean the difference between paying the electric bill or not getting a household member decent medical treatment after an injury or illness, among other financial realities.
The Real-World Impact of Holiday Overspending
Common sense says that adding extra costs to a household budget throws that budget out of whack. So, what do exorbitant holiday expenses - especially with high-inflation prices in the mix his year - do to a household budget?
Plenty, financial experts say – and not in a good way.
“If you overspend, you’re more likely to be in debt - specifically credit card debt,” said Achieve vice president Tanya Peterson. “One result is that you end up paying a lot more than the purchase price of what you bought.”
Consider what happens if you have credit card debt of $3,000 with an 18% interest rate.
“A standard minimum payment of 3% would be $90 per month,” Peterson noted. “Paying only the minimum (which will decrease over time) would cost you $2,698.44 in interest, and take nearly 16 years to pay off. That means you’ll be paying almost twice as much for what you bought in the first place.”
That’s just for starters. Peterson lists additional downsides to holiday overspending:
• You lose the chance to do something good with the money you are paying to the credit card issuer in interest.
“If your credit card charges 18% interest, and you pay off the balance, you are guaranteed to save yourself from losing 18% – which is, in effect, getting an 18% return,” she said.
• If you’re unable to pay off a credit card balance in full each payment period, interest will continue to accumulate.
“If you’re still charging purchases on the credit card, you’ll fall even further behind,” Peterson said.
• If you’re carrying credit card debt, your credit score may fall because your utilization percentage will rise.
For example, if the sum of your credit card limits is $10,000, and your total credit card balances are $3,500, that's a 35% utilization (i.e., the percentage of your available credit that you’re using.
“Credit card utilization can be very influential to your credit score, so you want to keep your credit card balances and utilization low,” Peterson added.
Tips to Stay Trouble-Free During the Holidays
The good news? Holiday overspending can be mitigated if you make the effort. Start that process with these key budget-enhancing action steps.
Leverage coupons and discounts. It’s no secret that the key to holiday gift buying is making sure you’re getting the best price. There are many efficient and clever ways to do that.
“Take a few extra minutes to look for the item at its lowest price point,” said TopCashback consumer finance expert Rebecca Gramuglia. “From there, layer on any applicable coupons and promotions.”
To do that, holiday shoppers can leverage a free cash-back site, like TopCashback, which guarantees the highest percentage of your money back on qualifying purchases from over 7,000 retailers.
Stick to your budget. Save money by being upfront with family members about your holiday spending budget.
“Be honest with loved ones and don’t overspend for the sake of the holidays,” Gramuglia advised. “It’s important to set a budget, especially if you’re shopping for friends, family, or significant others. That way, you’re all on the same page and you won’t feel pressured to overspend. “
That’s especially the case with family gift-giving. “Try to do a larger, singular gift for everyone – like an experience,” Gramuglia added. “The memories are likely what they’ll remember most. Find significant deals from sites like Groupon. You can even layer those deals with credit card rewards/cash back offers.”
Have a dedicated payment account for personal shopping. Before engaging in any gift shopping, open a checking or savings account dedicated to your holiday expenses to more easily manage your personal shopping budget.
“This method is useful because when the account is empty, you have a clear cut-off on your spending,” said Navy Federal Credit Union finance manager Thomas Racca. “Remember, the New Year is right around the corner. Use your account to create a shopping list for the new year, and make it a point to start saving in January of next year to minimize similar experiences for the next holidays.”
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