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6 ways to spend smarter and avoid debt this holiday season

Instead of accumulating new debt this shopping season, give your bank account some relief with these tips.


Protect your financial health this holiday season.

Yulia Reznikov/Moment/Getty Images

Black Friday pandemonium kicks off this week with deals, discounts and sales for all types of gifts, from tech products to kitchen accessories. As the country recovers from the COVID-19 pandemic, more Americans are expected to shop for holiday gifts compared with last year -- some 2 million more, according to the National Retail Federation.

Holiday shopping can carry a hefty price tag, even with Black Friday and Cyber Monday discounts. And this year, almost a quarter of Americans expect to take on debt to pay for holiday gifts, according to a 2021 Credit Karma survey

We recommend minimizing debt when possible, and there are ways to avoid it while holiday shopping this year. Whether you're buying a new gaming console, updating your wardrobe or grabbing goodies for your colleagues, here's how you can cut out the financial heartbreak this season. 

1. Establish guidelines with your friends and family

If you can't afford to spend big bucks this holiday season, talk to your friends and family about it. There's often pressure to snag the best gifts for your loved ones, and we sometimes feel like we need to match what others spend. Likelihood is, however, that some on your list are also facing financial pressure. 

One way to relieve the burden is to discuss setting a price limit or spending cap for gifts. Another option is to exchange homemade gifts instead (I call this bringing my Animal Crossing DIY skills into the real world). You could do crafting, make things like body scrubs or body butter, knit sweaters and scarfs, write songs, create photo collages or make a terrarium from plant cuttings and recycled jars.

You could also propose a white elephant or Secret Santa gift exchange. This type of exchange randomly assigns you to buy a gift for just one person in your group, and only one person will be assigned to buy something for you. Combine that with a price limit for gifts and you'll spend a lot less this holiday season.

If you can't afford to buy gifts this season, you're not alone -- 11.5% of holiday shoppers are opting out of buying gifts this year, according to a recent Deloitte holiday retail survey. We recommend reviewing your budget and deciding if gift shopping fits into your financial plan. If not, let your family and friends know you'll be skipping the gifts this year. 

2. Plan in advance

If you're worried about overspending, establishing a strict spending plan and a list of items to purchase can help, especially if you're trying to snag certain Black Friday and other holiday deals. You can create a quick budget using Excel or Google Sheets, or use a budgeting app to help figure out how much you can afford this holiday season.

Additionally, if you plan on using a credit card and taking on some debt this year, creating a repayment plan to stick to after the holidays wind down can keep you on financial track after the Christmas tree is put away. 

3. Make overspending more painful

If you're worried about busting your budget, make it harder to part with your hard-earned dollars by shopping with cash at brick-and-mortar stores.

Studies have shown that you're likely to spend more when using a debit or credit card as compared to cash, and some evidence suggests that credit cards "take advantage of cognitive biases and other psychological mechanisms," according to an analysis in Scientific Reports. One leading hypothesis is that parting with physical cash may trigger a higher "pain of payment" than paying with credit cards, making it less likely you'll overspend.

4. Use credit card rewards to buy gifts

If you do plan to pay with a credit card this holiday season, be sure to use one with a low-interest rate. If you're applying for a new credit card, a 0% introductory APR card might be a good pick if you need more time to repay your balance. Or try a cash-back card, which can help you earn rewards for each dollar you spend.

If you're already an avid credit card user, check to see if you've earned points or cash rewards that you can redeem toward holiday shopping.

Using your rewards money for holiday shopping can prevent you from racking up new debt or depleting your checking account. Though each card provider has different rules for rewards, you can usually redeem cash back as a statement credit that can be applied to your credit card, or else you can request it in the form of a gift card or bank payment.

5. Sign up for browser extensions that hunt down coupons and rewards

This decade has ushered in some impressive software services, but some of the coolest ones are free internet browser extensions that scour the web for coupons and online rewards. These extensions automatically apply available savings to your cart at checkout.

The most popular among these coupon-hunting services is Honey, which you can download for Google Chrome. Rakuten is another well-known service, allowing you to get cash back on purchases at no cost to you. And it's legit: Rakuten collects commission from stores for sending you in their direction, and a portion of that commission is used to give you cash back. 

6. Use Acorns to put away some money

Acorns is a micro-investment platform that invests your leftover change in an Acorns account for just $1 a month. While Acorns won't help you avoid debt this holiday shopping season, it can give you a head start on next year's investing goals by stashing away small amounts of money with every purchase you make.