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Credit & Debt

6 Ways to Take the Bite Out of Holiday Spending

The holidays are about love, togetherness and—sometimes—overspending. For Kelly N., that reality struck home several years ago when she and her husband moved back to the U.S. after living abroad. "We were both only working part-time and making much less than we were used to," she recalls. Determined not to skimp on the holidays, Kelly had already spent more than they could comfortably afford before getting unwelcome news: The family car needed new brakes.

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It's all too easy to get caught up in the holiday fervor and dig yourself into a financial hole, says Josh Palmer, CFP®, head of the wealth advisory team for Chase Wealth Management.

It all adds up to a potential holiday hangover—especially coming on the heels of spending for Halloween and Thanksgiving, Palmer notes. "You know it's coming, but it can still sneak up on you." Here are some ways to keep holiday spending in check.

Set a comprehensive budget. "A lot of people set a limit on gift buying but forget about things like travel expenses to see Grandma," says Lynnette Khalfani-Cox, a financial coach and author of Zero Debt. Before you start spending, estimate your total costs for the holidays, including gifts, travel and food. Once you have a plan, tally up your total spend. If the result will have you paying for the holidays well into the New Year, take a hard look at your list for costs you can trim. "For example, you might bake cookies for coworkers or give your mother something homemade, like a collage of photos," suggests Khalfani-Cox.

Save up for the spend. In the weeks leading up to the holidays, "look for ways to cut discretionary expenses, such as eating out or entertainment, and steer those savings toward your holiday spend," Palmer advises. Saving in advance can help limit your post-holiday debt. Ideally, saving starts early in the year. But it's never too late to begin, Palmer adds. Even seemingly minor savings—taking your lunch to work instead of eating out, for example—could add up over the next couple of months.

Expect—and plan for—the unexpected. Real life doesn't stop because of the holidays. A burst pipe or unexpected travel to visit an ailing relative could derail a holiday budget that's already stretched thin. If possible, build a cushion of $500 into your budget to cover unanticipated expenses. "This 'rainy day fund' is different from emergency savings, which are meant to cover three to six months of living expenses in the event of a job loss," says Khalfani-Cox.

Resist the urge to splurge. "If an item doesn't fit within your preset spending limit, avoid it," Palmer urges. "I have four kids of my own, so I know how hard that can be." Keep a running tab of holiday purchases as you make them, he suggests. This can tell you how much you have left to spend, and it may help you resist that expensive decoration or the "perfect gift" that's beyond your budget. If you find out you've inadvertently bought too many gifts, "bring a few back to the store for a refund," Khalfani-Cox suggests. After Kelly realized her own holiday shopping was over-budget, that's exactly what she did. "I returned a bunch of gifts and also scaled back on some things I'd planned to buy that we clearly couldn't afford," she says. "And we still had a wonderful holiday. The kids didn't even know the difference."

Set shopping time limits. "It's easy to lose track of time and spend all day and too much money" during a holiday shopping expedition, Khalfani-Cox says. In advance of each trip, decide to shop for only two hours, for example, which could help you focus and avoid spontaneous, budget-busting purchases. Shopping with a friend and setting a mutual time to head home may help both of you maintain discipline, she adds.

Control your credit. If you use a credit card to cover holiday costs, pay off the balance in full each month, if possible, to avoid unnecessary interest payments, Palmer suggests. Be sure to pay at least the minimum balance on time, he adds, since late or missed payments can damage your credit rating. (Visit Chase Slate to explore opportunities to become financially fit.)

As you shop, don't leap at every offer from a retailer to apply for a store card in exchange for merchandise discounts, Khalfani-Cox advises. Applying for several cards at once could have a negative impact on your credit score—potentially making it harder to obtain a mortgage or car loan later on.

Today, even though both she and her husband are back to full-time work and have more money to spend, Kelly still follows a disciplined approach to holiday shopping. "My eyes were opened about the importance of budgeting that year. I'm a lot more careful now," she says.

Turning the corner into January—when you start carting decorations back to the attic—is the ideal time to get a jump-start on planning for next year. Assuming you stayed within budget this year, "add an increase for inflation and use that as your goal for next year," suggests Palmer. "If you put a little money aside every month, you'll be in great shape for the 2018 holiday season."

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