Be nice, not naughty, with holiday spending

The countdown to Christmas is on, and in the weeks leading up to the holiday, you'll likely be paying for gifts, dinner party meals and other costly festivities. If you don't plan ahead, you might end up charging all these expenses, then finding yourself with a huge bill as a welcome to the New Year.

"People love gifting and giving to charity, but then it hits you at the end of January and you have no plan to pay for it," says Mark Kalinowski, a Calgary-based credit counsellor.

In December 2015, a CIBC poll found Canadians spent an average of $601 on their Christmas spending. Twenty per cent of those surveyed said they'd go over-budget, while another 24 per cent said they didn't even create a budget.

holiday-spending-planKalinowski and Isaiah Chan, a program manager at the Credit Counselling Society, offer these tips on how to avoid a credit mess during the holiday season.

1. Use reward cards, but strategically.
Kalinowski says he used to have a "ginormous" stockpile of Air Miles from putting everything, including holiday expenses, on his credit card.

After that, he'd reap major discounts on airfare for family vacations.

Following Kalinowski's footsteps can be fruitful, but you'll need a plan to pay off your purchases immediately, or at least by the time the bill is due. Otherwise, interest cancels out any bonus you get from using your card, he says.

2. Don't forget to redeem points.
Stockpiling credit card points or even store loyalty points throughout the year is a great idea, but you have to remember to use them, or the spending is for naught. A great way to kill two birds with one stone is to stock up your rewards all year, then use the points on Christmas gifts.

That's exactly what Kalinowski does.

"I bought my sister an iPad with my Air Miles," he says. "I'd been collecting points from business travel and used them to get her a gift she loved."

3. Save year-round.
Ideally, at the start of the year, you set a budget for various categories: necessities and bills, travel, new clothes, and occasions such as weddings and birthdays. Christmas or other holiday gifts deserve a slot on your annual budgeting, too, Chan says.

However, this holiday spending category often is overlooked, leaving consumers in hot water after their December splurging. Whether holidays are their own category or included in your "special occasions" category, they must be factored in, Chan says.

With this foresight, you could save $50 a month and have $600 by the end of the year to pay for holiday expenses. That would keep you from trying to pull that $600 out of thin air come December and resorting to your credit card.

4. Make a budget.
You don't need to know exactly how much you'll spend on gifts for each person, but have a rough idea, says Chan. Maybe you want to allow up to $50 for a gift for your spouse, while you don't want to spend more than $20 on your friends.

List who you need to shop for and how much you plan to spend on them - then,   adhere to the parameters you set.

Can't trust yourself with a credit card, even with a strict budget? Go cash-only.

If you have 10 people to shop for, and want to spend no more than $250, go to the ATM, take out $250, and put it in an envelope. Or, put it on a prepaid card if you want an added layer of security in case of theft. Don't even take your credit card with you when it's time to holiday shop, only your cash or prepaid card.

5. Get your family involved.
Forty per cent of Canadians told CIBC buying food and alcohol to entertain their family and friends is what pushed them over their budgets. Another 32 per cent said eating out was their most worrisome expense.

Chan says that families can lessen the pressure to spend by agreeing on cost-cutting measures ahead of time.

Rotate Christmas dinners so that each family member takes a turn hosting, or even divvy up costs, so one couple takes care of the turkey dinner, while another covers wine and desserts.

Draw names out of a hat for a Secret Santa instead of buying gifts for all of your loved ones.  This could make gift-giving more sentimental rather than a mandatory exchange.

6. Don't sign up for store credit cards.
You're going to be doing a lot of shopping, and almost every store you go to will have tempting discounts when you sign up for a store credit card.

However, these cards generally have much higher interest rates than regular credit cards, and if you can't pay off your bills right away, or forget about your new card in the flurry of the new year, you'll end up paying for your on-the-spot decision.

Not only that, but signing up for a ton of new cards can negatively impact your credit score, too.

7. Remember how you felt last January.
Before whipping out your credit card carelessly, think back to how long it took to pay off your credit card after Christmas last year, Chan says. "Why are you putting yourself into further debt?" Chan says. "Think of how you felt and let that guide your decision-making."

See related: Start holiday shopping early to save money, avoid debt; How to make the most of your Air Miles rewards; Is it wise to shop in the U.S. to earn more rewards with weak dollar?

Updated November 4, 2016

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