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7 ways to avoid a holiday credit card debt hangover

December 16, 2010

By Barbara Marquand | Money Rates Columnist

Despite tough economic times, 69 percent of adults who planned to do holiday shopping this year did not have a budget, according to a November online Harris Interactive poll commissioned by the National Endowment for Financial Education.

Shopping without a budget is never a good idea, especially during the holidays when emotions run high and you're inundated with advertisements inducing you to spend.

Without a budget, impulse purchases can spiral out of control and set the stage for a spending hangover in January when credit card bills arrive.

Here are 7 ways to head off the hangover.

1. Make a list.

Prepare a list of people for whom you want to buy -- spouse, children, relatives, neighbors, friends and service people, such as the babysitter or your child's teacher.

2. Set a total spending limit.

Decide how much you can spend without getting yourself in debt or sabotaging your overall financial plan. (You shouldn't be financing gifts with money you were setting aside all year for an individual retirement account, for instance.)

3. Create a detailed budget.

Decide how much you can spend on each person on your list. If you don't have enough money to spread among all of them, then consider some less-expensive options -- homemade cookies for the neighbors, for instance, instead of store-bought gifts.

Don't forget to account for extras, such as wrapping paper, craft materials and postage.

4. Use your credit card wisely.

Using cash helps you keep track of how much you're spending. But it makes sense to use credit cards for big purchases, such as electronics. Many credit cards provide extra protection on purchases, such as extended warranties and price protection, which lets you get back the price difference if you buy something and it goes on sale later. Check with your best credit cards 2012 issuer about any special protections your credit card offers.

5. Track your credit card and other spending.

Write down how much you spend to track how well you're staying on budget. Don't forget to include purchases with your credit cards. Check your balances online throughout the holiday shopping season so the grand total doesn't shock you in January.

6. Be a savvy shopper.

Compare prices to find the best deals. Remember, stores offer certain items at deep discount to get you in the door, hoping you'll buy other stuff at higher profit margins. Resist temptation, and stick to your list.

7. Don't confuse over-spending with generosity.

Do you buy gifts for loved ones, only to add to them later out of guilt or an effort to make the gift even bigger and better? The National Endowment for Financial Education advises to resist the urge. Once you've bought a gift for someone, cross the recipient off your list.

If sticking to a budget makes you feel like a Scrooge, remember that some of the best gifts don't come with price tags. Instead of buying more things, find meaningful ways to connect with others and give of your time.

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