Americans expect to spend about $900 on holiday gifts this season. According to the same Gallup Poll, one-third of adults plan to spend more than $1,000. If those numbers hold up, this will be biggest-spending Christmas in more than a decade. A boon to retailers, certainly, but to you and me? Not necessarily. That's because many Americans go into debt to foot the bills for their holidays. About 30 percent of people will pay off their bills within three months. But another 25 percent will take 12 months to pay those bills. That can get pricey. If you spend about $900 and you put that on a credit card, the interest rate will determine how much it costs you to carry that debt for a year.Rate of interest 3 months/12 months:
6.9 percent interest = $16 $6312.9 percent interest = $29 $11718.9 percent interest = $43 $17224.9 percent interest = $56 $226And that's without incurring any late fees or over-limit charges. So what do you do to help rein in the potential debt?Set a budget
People hate the word “budget.” I prefer the term “spending plan” — it's not only more positive, it puts the power back in your hands. You are going to plan how much you are going to spend this holiday season. The way to do that is to make a list of the people you need or want to buy for and next to it, note how much you plan to spend on that person. Make sure to take taxes and shipping into account. Also, factor in things like wrapping paper, holiday cards and that bottle of wine you take to each holiday party — they all count. When you're done, add up the numbers and that becomes your budget.Decide if it’s reasonableLook at the numbers you've come up with and decide if they make sense based on the amount of free cash you have available to you each month — the amount left over after you pay for your fixed expenses (house, car, gas, child care, health care, groceries, etc.). Although some people can pay for the holidays in a lump sum, as we saw before — others cannot. But I'd rather see you make it a goal to pay for the holidays in three months rather than in a year, incurring a reasonable $43 on an 18.9-percent credit card rather than a whopping $172. So how do you come up with that money? Either by spending less or earning more. To spend less, start cutting back a bit in advance on any variable expense you can. We have seven weeks until Christmas. If — by skipping the sort of little extras you indulge in — you could come up with an extra $50 a week, you'd have $350 a month to put toward Christmas and you'd have it paid off by February. What sort of extras? For me, skipping taxis alone would do it. But every person is different. Other people may have to cut out one restaurant meal a week. Or one purchase at the video-game store. Or the makeup counter. Or the bookstore. If you don't know where your own weaknesses are, look at your last three credit/debit card bills for the clues. If you chose the earn-more route, it means a few hours of overtime, a little moonlighting or selling assets you don't need to come up with the additional cash. Trim the budget before you start spendingThe other thing you can do is cut the budget before you start spending. If you have 15 people on your list, slash the amount you're going to spend on each of them by $10 and that will lower your total by $150. Consider chipping in with friends for another's gift or opt for a gift exchange — with a spending limit (everyone will be relieved, believe me). If your biggest expense is holiday cards, send an e-card instead. You can do it for free — and save 41 cents per card in postage. Try to take your total down by 20 percent before you even start shopping. More than that may be more Scrooge than you can handle.
You should start early because you're more rational. When you shop under pressure, you make bad budgeting choices, inevitably buying things you're not happy with and spending more money than you would otherwise simply because you feel as if you have to DO SOMETHING NOW. Give yourself plenty of time to make rational decisions, sticking to your list of how much you're going to spend on each person. And if you find you have to borrow some money from Mom's tally to buy something for Dad, make sure you actually spend less on Mom or on someone else. Adding a little bit to each person is a sure way to blow the spending plan to pieces. The other reason to shop early is to avoid having to ship things across the country or even across town at a high price. The cost of shipping can double the price tag of a $25 gift if you're sending by overnight mail.
Use non-cash currencies as subsidiesYou have gift cards sitting around? Frequent flier miles that are just sitting in your account waiting to expire? Credits at stores that you haven't used? Bingo! Use that non-money money to take a big chunk out of your holiday spending. In American Express' Membership Miles program, 5,000 miles can buy you $50 in spending money at a handful of stores including Saks, Banana Republic, Restoration Hardware and L'Occitane. We've all heard complaints that frequent flier miles are so much harder to use these days because upgrades and free seats are tough to come by. Keep good records of what you've spentIf you're like most people, you'll do some of your holiday spending in cash, some on plastic, some in stores and some online. Which means: If you're going to stick to this spending plan you've created, it's essential to keep track of how much money is going out. I'd use the original list you created to keep yourself honest. Tuck it in your wallet or your purse and fill in the blanks each time you make a purchase. That way you won't forget anyone important, either.Finally, there are people who make these plans and then let them go, time and time again, “because it's Christmas.” Christmas comes every year. So does your birthday. And Valentine's Day. If we succumb to that logic, we can excuse ourselves all the way into the poorhouse. This year, give yourself the gift of not digging your way into a hole that you then have to climb yourself out of.
Jean Chatzky is an editor-at-large at “Money” magazine and serves as AOL’s official Money Coach. She is the personal finance editor for NBC’s “Today” show and is also a columnist for “Life” magazine. She is the author of four books, including “Pay It Down! From Debt to Wealth on $10 a Day” (Portfolio, 2004). To find out more, visit her Web site, .