Stay Out of the Red on Black Friday

Debt Proofing the Holidays
(Stock photo)

Black Friday is almost upon us -- the day when millions of excited shoppers crowd the malls or seek out cyber deals to knock out their holiday shopping.

Yet all too often we overspend in the midst of the excitement and doorbuster deals, only to wake up in January with the aftermath.

This doesn't have to be the case -- with a little planning, you can avoid the pitfalls and stay in the black. Here are eight tips to help you this holiday season:

1. Make a plan. Having a plan is essential to avoiding debt. Analyze your finances, and choose an amount that you can truly afford to spend this holiday season. Allocate specific amounts to each recipient. Most importantly, STICK to this amount.

2. Know what your friends and family want. The quickest way to go overboard with holiday shopping is to shop for gifts without a clear sense for what your loved ones want to receive. All too often, we panic and just buy an expensive gift assuming that if it's expensive, it must be good. Taking the time to understand what your friends and family really value will help you find the right gift at the right price.

3. Avoid credit. Set up a separate checking account or a prepaid debit card to use for your spending. This is a great way to avoid overspending on your holiday purchases. Be sure to set up balance alerts to know how much you have left. Studies show that people are willing to spend 30-100 percent more on an item when spending with credit card, so sticking to debit will keep you focused on staying within your budget.

4. Use layaway. Not only does layaway help to plan your purchases in advance, it also enables you to rely less on your credit cards.

5. Track as you go. Tracking your purchases as you go helps you stick to your initial plan. Track your spending on gifts against the amounts that you've allocated to each recipient to make sure you're not overspending. 

6. Avoid store credit cards. It may seem like a great deal -- 20% off just by opening a store credit card, but beware the hidden costs. Store cards tend to have high interest rates and can actually have a negative impact on your credit score. Signing up with various retailers for short amounts of time and then canceling after receiving the deals can lead to dings on your score.

7. Don't forget the hidden holiday costs. Many people forget to take into account the hidden costs of the holidays such as travel, food, decorations, entertainment and donations. Make sure to factor these into your overall holiday budget.

8. Negotiate your rate. If you have to spend on credit cards, negotiate your interest rate with your bank. It takes only a few minutes to call and request a lower rate, but it can save you thousands in interest. Once you've negotiated to receive the lowers rate, only use that card.

Setting a plan for the holidays before you start shopping will help you avoid the common pitfalls that bust your budget and lead to the proverbial holiday hangover.

-- Scott Crawford

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Personal Finance