How to Avoid Holiday Debt
Holiday spending on credit cards and buy now, pay later plans can follow you well into the new year. Here's how to keep the season debt-free, use credit wisely if you do, and pay off any holiday debt fast.
By Pond.com editors Updated 3 min read
Quick answer
- Set a holiday budget and pay with savings or this month's income, not borrowed money.
- Use a credit card only if you can pay the full balance by the due date.
- Be careful with buy now, pay later plans; several at once are easy to lose track of.
- Avoid store credit card offers at checkout, which often have high interest rates.
- If you do end up with holiday debt, make a plan in January and pay the highest-rate debt first.
It's easy to overspend in December. Sales, gift lists, parties and travel all add up, and credit cards and buy now, pay later plans make it painless at checkout. The bills arrive in January, and debt with high interest can take months or years to clear. With a plan, you can enjoy the holidays without that hangover.
Start with a budget
Decide on a total you can pay for from savings or this month's income, and split it across gifts, travel, food and everything else. Our guide on how to budget for the holidays walks you through it.
Pay with money you have
- Use cash or debit for holiday spending if you tend to overspend on credit.
- Use a separate account for holiday money, so you can see what's left.
- Pull from a holiday savings fund, not your emergency fund.
Use credit cards wisely
A credit card is fine if you pay the full statement balance by the due date. You avoid interest, and you may get rewards, purchase protection and extended warranties.
- Don't carry a balance. Credit card interest rates are often above 20%, so a gift carried on a card for months can cost much more than its price.
- Keep your balances low, since high balances compared with your credit limits can lower your credit score. See how credit scores work.
- Skip store card offers at checkout. The discount is rarely worth the high interest and the hard credit check.
Learn more in how credit cards work.
Be careful with buy now, pay later
Buy now, pay later (BNPL) splits a purchase into several payments, often interest-free. It can help with a planned purchase you can afford, but:
- It's easy to stack several plans with different due dates and lose track.
- Missed payments can bring late fees, and some plans charge interest.
- Payments are often taken automatically from your bank account or card, which can cause overdrafts.
If you use BNPL, write down every plan and payment date, and count the payments in your budget.
Watch the hidden spending
- Impulse buys and "a little something for me" purchases
- Rush shipping when you shop late
- Last-minute travel, which costs more
- Hosting costs that grow as the guest list does
If you already have holiday debt
- List every debt with its balance, interest rate and minimum payment.
- Pay the minimums on all of them, on time.
- Put any extra money toward one debt, either the highest interest rate first or the smallest balance first. See debt snowball vs. avalanche.
- Cut back in January and February and use any extra income, such as a tax refund, to pay it down.
- Consider a 0% balance transfer card or a lower-rate personal loan if you qualify and have a plan to pay it off.
Common questions
Not if you pay the full balance by the due date. You avoid interest and get purchase protection and any rewards. The problem is carrying a balance, because credit card interest can make holiday gifts cost much more over time.
It can work for a planned purchase you can afford, if the plan is interest-free and you make every payment on time. But it's easy to stack several plans, and missed payments can bring late fees. Count each plan's payments in your budget.
Usually not. The one-time discount is often small compared with the high interest if you carry a balance, and opening a new account can lower your credit score for a while.
List each debt with its balance and interest rate, pay more than the minimum on one at a time, either highest rate first (the avalanche method) or smallest balance first (the snowball method), and cut back spending in January to free up cash.
It can, if you qualify for a 0% intro rate card and can pay the balance off before the intro period ends. Watch for a transfer fee, usually around 3% to 5%, and don't add new spending to the card.