362 Days ‘Til Christmas!
As post-holiday credit card statements begin arriving, the money hangover for many is just beginning. The annual financial bonanza for high-interest lenders causes one to wonder whether Capital One might just have invented Santa Claus.
The Real Cost of Debt-Financed Holidays
In “How Easily Debt Grows” I showed how overspending just $100 per month for five years—adding a total of $6,000 to a 19.99% APR credit card balance—can end up costing nearly $22,000.
Using credit cards to pay for holiday spending works the same way, friends.
Let’s say you added $2,000 to a 19.99% APR credit card balance between Thanksgiving and New Years for gifts, travel, and partying. Now let’s say you pay that off by boosting by $100 your monthly credit card payment.
With this scenario, first, 2016’s and 2017’s Christmases will pass before you’ve paid off Christmas 2015!
Second, your $2,000 holiday binge will end up costing you $2,453, including interest.
Follow this strategy every holiday, and it’s easy to forecast where you may be spending much of your post-career lifetime: in Wal-Mart, as a greeter.
How to Pay for 2016’s Holiday Spending With Cash: 5 Ideas
Here are my 5 suggestions to help improve the odds you’ll have cash to pay for 2016’s holidays:
- Coffee: Drop a buck in a savings jar every time you buy coffee outside your home. You thought I was going to cut off your Starbucks, didn’t you? Naaah. Though popular with money pundits, cutting out small luxuries is not a key ingredient of financial success (here’s what is). Instead, indulge in all of the outside coffee you want. But each time you buy coffee outside of your home, drop a buck (or a loonie for you Canadians—and this includes Timmy’s double-doubles, especially) into a big jar dedicated to the purpose when you get home. You might be surprised to find a few hundred dollars in your jar by December 23rd (which is when I start thinking about Christmas shopping).
- Uncle Sam: If you have a tax refund coming, file early and often! 🙂 If you are suffering financially with a post-holiday spending hangover, the best use of that refund may be to pay down your debts and stop the bleeding! But if your tax refund is more than your high-interest debt, slap whatever’s left of that US Treasury check directly into a dedicated bank account nicknamed “DEBT-FREE HOLIDAYS,” and forget about it until December. Here’s phase 2 of this strategy: consider filing a replacement W-4 with your employer and have less tax withheld from your paycheck. If you lack discipline, once your new W-4 kicks in, go back to the payroll department and set up an automatic payroll deduction causing the increase in your take-home pay (because less tax is being withheld) to be siphoned off into a dedicated, debt-free holiday bank account. This way you’ll effectively get your 2016 tax refund before, not long after, the holidays!
- Insurance: You’re probably paying for some or all of auto, home, renters, life, and health insurance. The more insurance you buy, the bigger opportunity you have to save. Shopping insurance used to be a pain, but many web-based tools now make it easy. Insurance is a competitive business, and you can save thousands of dollars annually by re-shopping insurance every year. If you have any, even seemingly remote, U.S. military connections, USAA.com is worth checking out. For Canadians, InsuranceHotline.com can be helpful for many types of insurance. In the U.S., Google offers a car insurance comparison tool. Your own Internet searches will no doubt turn up many more sites geared to helping you accumulate competitive insurance quotes. When you change insurers, figure the annual savings, and deposit that self-generated bonus directly into your debt-free holidays bank account.
- Earn: A Google search of “side gigs” yields 13,400,000 results. Here’s the first one. Oh, you don’t have time for a side gig? Well, to be honest, my first thought is “bulls**t.” But if you insist, how about making a case with your boss for a raise at your current job? That won’t take much time. Of course the key to making this strategy work is to save the extra income for the holidays, not spend it as soon as it hits your device-craving, drink-hoisting, game-playing hands.
- Crap-Out: I bet your home is much like mine: overflowing with crap you never use and don’t need. How did that happen? It’s not complicated: we buy too much crap, and we fail to get rid of useless crap. A cash-only holiday will be far easier to achieve if we resolve to make our holidays, and lives, crap-less.
For Best Results, Repeat!
This article focused on holiday spending because that’s the most recent insult to our credit card balances. But guess what: these strategies work well for any foreseeable larger purchase: a vacation, a car, a snow blower, a tuition bill, or an insurance premium. Try it out, and let us know how it works for you!