Avoid a New Year’s Debt Hangover

Sometimes it seems like your credit cards and checkbook have a mind of their own -- you go into the holiday season with the best intentions of limiting your holiday spending, only to face the New Year with a mountain of debt.
The holidays can be one of the toughest challenges for your budget: You find the perfect gift for your mom, but it’s $25 more than you planned to spend. Or your co-worker (who wasn’t on your list) gives you a gift and you feel you need to reciprocate; add another $20 to your balance due.

As hard as it may seem to tame holiday spending, you don’t want to spend the coming year paying off one month’s worth of merriment. Here are a few steps you can take to make this New Year one you look forward to.

* Plan ahead -- Make a list of all the gifts you expect to buy, and set a realistic budget for these purchases. Talk to your family and friends about setting a price limit on gift exchanges. You may not want to be the one to broach the subject, but chances are the suggestion will be welcome.

* Stay focused -- As you shop, keep close tabs on your spending and compare your actual costs to your budget. Keep a running tally of how much you’re spending and how close you are to your limits. When you want to splurge by ignoring the fact that you can’t afford something and putting it on your credit card, avoid the temptation. “The rule of thumb is that your debt should be no more than 30 percent of your credit limit. Otherwise, creditors may view it as excessive debt and be concerned you may not be able to pay as agreed,” says Maxine Sweet of Experian, a company that provides consumers with information and products to help them understand, manage and protect their personal credit profiles.

* Be an informed shopper -- The Internet makes it easier than ever to compare prices on just about any item. Better yet, around the holidays, many Web sites offer special incentives such as free shipping.

* Give gift cards -- They’re easy to shop for, you can choose an amount that fits your budget, and the recipients get to choose something they really want. And, they’re easy to wrap and ship.

* Monitor your ATM and charge cards -- “Identity theft is on the rise, and the busy holiday season is prime time for this type of crime,” cautions Sweet. “Don’t be an easy target. Pay extra attention to your cards and receipts. Check your monthly statements for any inaccuracies or fraudulent activity.” If you carry a monthly balance, consider consolidating your debt on the card with the lowest interest rate.

* Review your credit report -- You can get a copy of your credit report from Web sites such as www.experian.com. Verify that all the information is correct, and that there are no unfamiliar accounts on the report.

If a quick review of your financial situation shows that you can’t spend as much as you’d like on gifts this year, get creative. Just because you can’t spend a lot of money doesn’t mean that you can’t make the holidays special for your friends and family.

If you just can’t afford to buy gifts for the whole family, consider suggesting that your family draws names this year and buys for just one person, instead of getting gifts for your siblings, their spouses, and their kids. Similarly, how about starting a grab bag tradition among your friends in place of buying gifts for everyone?

Giving a charitable contribution in honor of your friends or family is really two gifts in one -- the charity gets a much-appreciated donation, and the honoree gets the satisfaction of knowing they’ve made a difference.

Finally, consider getting your friends and family together for a holiday party. Spending time with those you love is what the holidays are all about, after all. The party doesn’t have to be fancy or expensive. It is just a way to gather those who are most important to you at this festive time of year.

Regardless of how much money you spend, you can make the holidays meaningful this year. Don’t feel pressured to overextend your budget when a kind gesture or thoughtful word will be appreciated just as much as an expensive trinket.