The holidays are rapidly approaching, and even the best of us — those who have saved up for holiday shopping, or are ready to grab some deals to keep the toll on our bank accounts down — may be worried if they’re ready enough. It’s O.K.: we have some tips to get you through it.
For at least a century, consumers have been bedeviled by a yuletide conundrum — you want to give gifts to the people in your life and yet you don’t always have the means to afford ’em.
Go to any store or surf online and we bag-toting, achy-fingered denizens are bombarded with bank advertisements for an assortment of credit card options (cash back credit cards, retail credit cards, zero percent APR financing with an asterisk) that has only muddied your mental budget.
Ideally, you’d save up for your wishlist and responsibly use a credit card to pay for it without causing your hair to resemble St. Nick’s. And if you end up spending more than you planned, there are ways to limit the damage.
How to save for Christmas
Merkel Landis, of the Carlisle Bank of Pennsylvania, helped popularize the Christmas Club savings account, an idea that caught hold in the times before middle-class folks had easy access to credit cards.
Here’s how it works: Every week until the holiday season, you contribute a little bit of money to fund your holiday spending. Back in 1927, some people saved as little as 25 cents a week (about $3.70 today). After the savings period is up, you withdraw the money and then go on your merry way. Some accounts offer interest, others don’t, but they tend to be less than what you’d get from a typical savings account. If you want to access the money earlier than planned, you’ll pay a fee.
So why do this? A Christmas Club account isn’t about earning interest. The whole point is to force yourself to save and for it to be painful if you go back on your word. It’s an acknowledgment that we are sometimes our own biggest obstacle.
They were incredibly successful — Christmas Club savings accounted for about a tenth of all Christmas spending in 1935, according to Joel Waldfogel’s “Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays.”
Christmas Clubs do still exist, especially at community banks and credit unions. Starting January 1, you can seek one out or approximate your own by direct depositing a percent or two of your paycheck into a “Christmas” savings account. You won’t notice the money missing every pay period and by the end of the year, you’ll have a nice chunk of change. And writing down your goal will increase your odds of actually following through.
Spending on Christmas
Alas, like bathtub hooch, Christmas Clubs aren’t as popular as they used to be. Patiently scraping little bits of cash every two weeks into a low-interest account earmarked for Christmas isn’t fun. You know what is more fun? A rewards credit card (you may even have one now that you’ve been ignoring and it could have a nice bonus sitting there, waiting for you to collect). It can be immensely satisfying to see your rewards tick up whenever you swipe.
But that’s also why your plastic can get you into trouble. Different surveys show different stats for how much people spend during the holidays, but the narrative is the same: Buying more stuff than you typically do increases your risk of credit card debt.
To avoid this fate, make a list of the amount you plan to spend on each person this year and make sure the total is within your ability to pay without revolving a balance. I’d also recommend checking out the Wirecutter Deals page over the holiday shopping season to keep you on-budget.
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Once you’ve established how much you’re able to spend, consider a card that gives you rewards for your holiday shopping. Chase Freedom and Discover It, for instance, offer 5 percent cash back on up to $1,500 in purchases on specific categories each quarter. (Department stores is one of the Oct-Dec bonus categories for the Chase Freedom, while Discover includes Amazon.com, Target, and Walmart.com — all of which are ideal for the holidays.)
If all this sounds terribly complex, use our favorite cash back card, the Citi Double Cash. You earn a flat cash back rate of 2 percent on everything you buy (1 percent when you buy it, 1 percent when you pay it off) and you’re not confined to using your card at the one store to get the best rate.
Getting out of holiday debt
There’s a reason the average indebted American household carries roughly $6,000 in debt: plans often go awry or weren’t made in the first place.
Credit cards can get you into debt, but they can also be your salvation.
If you have a sizable holiday I.O.U., consider a balance transfer card. There’s an array of offers, as you can see in our guide of our favorites, but you’ll typically have two months to transfer over your debt after you’ve signed up for a card and then a long period (maybe 18-20 months) of zero percent APR to pay off your debt before interest kicks in. You’ll probably have to swallow a fee (usually 3 percent) of whatever you transfer. This is a good, low-cost option to avoid interest while you chip away at your debt. Warning: You likely need very good or excellent credit to qualify for one of these cards.
An alternative, valuable if you know you want to buy something beyond your budget, is to sign up for a card with a long 0 percent APR period for purchases. You get this type of card when you’re planning on going into debt and want to minimize your interest payments. One of our favorites, the Chase Freedom Unlimited, comes with 15 such months after opening your account, plus you’ll earn a decent rewards rate for your trouble. This will allow you to buy that $1,000 Steelcase Gesture office chair as a gift to yourself, and pay it off in 15 payments of $67.
Christmas, or any winter holiday that involves exchanging presents, is more than the stuff you give or receive. It’s the debating, comparing, and evaluating of what you want and what you think will make others happy, which is made all the sweeter if you can make it to New Years’ Eve without dipping into the red.
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A version of this article appears at Wirecutter.com.