Holiday Spending and a Debt-Free 2016

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holiday debt freeThe Apple Watch may be this season’s retail holiday trend – at least that’s what IBM Watson thinks – but it doesn’t take artificial intelligence or a supercomputer to identify one sure thing: Shoppers need money, and that’s true if they’re taking cash to the store on Black Friday or gravitating to mobile money.

Where that money is supposed to come from opens up a different set of questions, and a look at other trends. This holiday, seasonal spending is expected to be up 12.5 percent over last year, according to the Deloitte 2015 holiday survey, with many consumers feeling as though the economy and their personal finances have improved. That translates to about $1,500 per person, with roughly a third spent on gifts and another third on socializing and entertaining. But much of that “planned spending” doesn’t come with a budget that was quite as carefully planned as those holiday wish lists are, and less than half of consumers have a specific budget in mind. For many, that means using credit cards or taking out loans.

That’s not always a bad thing, but it’s best to consider your options and make a smart choice about why you’re borrowing money – and maybe more importantly, how you’re borrowing it. Using your credit card, for example, makes sense if you’re taking advantage of deep discounts on electronics or other big-ticket purchases during a Black Friday sale and you plan to pay off the balance in a short amount of time.

Not only are you likely to benefit from cash rewards on the balance, but you add additional protection if for some reason you’re not satisfied with the purchase, or have difficulty or a dispute with the retailer over the transaction. Check all that fine print, and you may find good reasons to use your credit card!

On the other hand, holiday shopping sprees with no thought to a budget can get you into trouble, and that’s what happened to about 25 percent of shoppers last year, one study finds. The spirit of the season is a good reason to splurge on once-in-a-lifetime romantic moments, on holiday travel or even making memories for your family in simpler ways. The joy is real, but these gifts and experiences come with a price tag, and the bills come in January whether or not you’re intentional about extravagance.

Personal loans may make more sense if you need to borrow money, and you know it may take time to pay off the debt. Most loans will have more attractive interest rates than your credit card does, but it depends on your credit history. A personal loan often lets you choose the length of the term you want to repay it, and the payments are fixed and structured so you’re not dealing with more variability. If you can’t pay your holiday expenses from savings and you don’t want the credit card debt, a short-term loan may be a good alternative – but beware of higher rates, depending on your credit and the loan amount.

Last but not least, take a minute to think about all of the holiday expenses you might have, apart from presents. Many people budget for their gift-giving, travel, or even their holiday meals, but overlook the other categories of expenses – and they can tally up. Your seasonal tips to hairdressers, mail carriers and others add up quickly. Gifts for teachers, colleagues and neighbors may come as a surprise. If you want to be generous to shelters, food pantries and other nonprofits at the holidays, that needs to be counted.

Ultimately, the holidays aren’t about crunching the data unless you really are Scrooge or, perhaps, IBM Watson – although Watson offers useful information as shoppers set out on the gift-giving adventure. But taking a few minutes to think it through can make the 2015 holidays easier when 2016 arrives, and maybe help you learn a thing or two about how to plan for even better memories in holidays to come.

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