It’s time for a Christmas story . . .

“Chris loved the Christmas season,

and giving was the number one reason.

But in the spending madness of the holiday rush,

he got so caught up in giving he told his Christmas budget to hush.

One minute he was cross-checking online deals,

and in the next, he was nipping at fellow shoppers’ heels.

Into the loudest toy store on Earth, he ran without a fright,

hanging on to the last Hatchimal for dear life.

He could always count on American Excess to help him fudge it.

That is, until yet another gift ’emergency’ derailed his Christmas budget.”

The Cost of Christmas Credit

If that little poem sounds familiar, guess what? You aren’t alone in overspending on Christmas . . .

The latest National Retail Federation survey shows that holiday shoppers plan to spend $1,048 on everything from presents and pies to tinsel and trees this Christmas.¹ That’s all well and good when it’s a planned expense you can cash flow. But all that holly jolly can do a lot of damage when you put the whole Christmas shebang on your credit card.

So let’s say you get carried away and put $1,048 of Christmas spending on a credit card, with an interest rate of 17%. And you decide just to pay the minimum payment of $25 each month because it seems easier that way.

Get this: It would take you more than five years to pay off your balance! By the time it’s all said and done, your $1,048 worth of stuff would cost you a whopping $1,625 thanks to interest. That’s an extra $553 tacked on to your holiday bill for one year of Christmas spending. Just imagine how quickly the dollar signs would stack up if you fund every single Christmas that way. Bah stinkin’ humbug!

And guess what? This isn’t just a credit card thing—the same goes for using services like Afterpay that let you pay for things in installments. Anytime you owe money to anyone for any reason, it’s still debt—and it’s still going to weigh you down.

How to Avoid the $550 Mistake

Going into debt is not the way to spend your hard-earned cash. What a waste! It’s time to dream a little . . . what could you do with an extra $550 if it wasn’t being eaten up by credit card interest?

You could use it to turbocharge your vacation fund every year. If you need a boost of motivation, picture a relaxing week with your family on the beach—or maxing out on magic at Disney World.

Here’s another idea: Pay your home off a little earlier with that $550! If you divide $550 by 12 months, that’s a little more than $45. Why not apply that extra $45 to your mortgage payment each month? Let’s say you have a $150,000 mortgage with a 30-year loan at 3.7%. That extra $45 a month  could shave almost $12,000 and more than three years off of your mortgage!

And of course, there’s always your nest egg. (Overachievers, take note!) Throw that cash into a Roth IRA, and watch it grow to a whole new level. Consider the numbers: If you invested $550 a year in good growth stock mutual funds, you could pump an extra $25,000–35,000 into your retirement savings after 20 years!

Make Next Christmas Even Better

We’re not saying you shouldn’t buy Christmas gifts for the ones you love. Giving is the most fun you can have with money, after all. But if you can’t afford to buy Grandma a diamond bracelet this year—don’t! She’s had harder knocks in life (remember that whole reindeer incident?) and will still love you even if all you can afford is your best batch of homemade cookies. avoid

And if you’re feeling regret for going overboard this Christmas, don’t worry. Just make the decision now that next year will be different. Make a plan to cash flow next year’s holiday spending and stick to your budget so you avoid feeling like you have no choice but to swipe plastic. (Spoiler alert: You always have a choice.)

Saving up for next Christmas is really pretty simple. Let’s say you want to budget $800 for Christmas 2020. Divide $800 by 10, then set aside $80 each month from January through October. Ta-da! By November, you’ll be ready to get a head start on your shopping with the money you’ve saved up all year long.

So don’t repeat the mistakes of Christmas past. Quit the excuses and get on a budget once and for all. Our free budgeting app, EveryDollar, can help you stick to your budgeting goals. That way you’ll be all set by the time next Christmas rolls around.

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