10 tips to avoid holiday debt — or get out of it

A young man and woman smile while looking into a store window, with holiday lights in the background.Image: A young man and woman smile while looking into a store window, with holiday lights in the background.

In a Nutshell

For many Americans, the joy of the holiday season is overshadowed by overspending and debt accumulation. But you don't have to break the bank to enjoy the holidays. With careful planning, you can avoid debt altogether. And if you spend more than you planned, there are strategies — such as debt consolidation and paying more than the minimum on your credit card — to help you pay it off quickly.
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The holidays are a time for giving. But if you don’t have a plan and budget in place, you could start the new year with a mountain of holiday debt to repay.

According to a study conducted by Qualtrics on behalf of Credit Karma, 36% of Americans can’t afford to buy gifts this holiday season, and 69% plan to take on debt to cover the costs of the holidays.

Fortunately, there are ways to spread holiday cheer without putting your financial health at risk. Here are some tips to help you avoid racking up bills you’ll still be paying long after you’ve exchanged gifts and taken down the decorations. And if you do end up taking on some holiday debt, we share ideas to help you get back on track quickly.

What is the average debt for Christmas?

A 2022 study conducted by Qualtrics on behalf of Credit Karma revealed that of the nearly 70% of Americans who plan to take on debt this holiday season, 36% plan to take on $500 or less, and 27% plan to take on anywhere from $501 to a hefty $2,500 in debt.

In 2021, the average American planned to spend almost $1,000 on holiday expenses, according to the National Retail Federation. These expenses included …

  • $648 on gifts
  • $231 on nongift items, like food and decorations
  • $118 on other nongift purchases for themselves or their families

Shoppers used credit cards to pay for 65% of their 2021 holiday spending, according to a MoneyGeek survey. As of February 2022, 40% of survey respondents hadn’t paid off their holiday debt and nearly 1 in 5 wished they’d spent less.

What is the first step to avoiding holiday debt?

The first step to avoiding holiday debt is to have a plan and budget in place before you make your first holiday season purchase. This can help prevent you from making financial decisions you may later regret.

Here are some other ideas to help you avoid holiday debt.

1. Create a budget and track your spending

Decide how much you can afford to spend on the holidays this year. Then make a list of everything you want to buy, including gifts, food, decorations, event tickets, travel and anything else that’s not part of your regular budget. Add up the total cost. If your expenses exceed your budget, cut items that are less important and keep those that mean the most.

While creating a budget is a good first step, it won’t mean much if you don’t stick to it. Tracking your spending by recording every purchase you make can help keep you on budget and curb impulse buys.

2. Take advantage of sales and coupons

Many retailers slash prices during the holidays — especially on Black Friday and Cyber Monday. If you’ve got your eye on something special, wait to see if it goes on sale. Check your local newspaper or online for coupons and promotional codes you can use to save even more.

3. Use credit card rewards

Don’t let credit card rewards go to waste. Use cash back, points or travel rewards you earned throughout the year to pay for holiday expenses.

4. Think outside the (gift) box

Prioritize spending time with people you care about over pricey gifts or fancy parties. Give homemade gifts you can put together with inexpensive materials. Host a potluck or organize a gift exchange party so you only have to buy one gift instead of dozens.

5. Get a side gig

One of the most effective ways to avoid taking on debt is to save up before the holidays. If you don’t have enough cash to cover your expenses, get a side gig or explore passive income streams to earn extra money for seasonal purchases and avoid starting the new year with holiday debt to repay.

6. Avoid buy-now, pay-later apps

Buy-now, pay-later apps make it easy to purchase items now — even if you don’t have the cash to pay for them — without taking out a traditional personal loan. Using buy-now, pay-later apps during the holidays can be tempting, but they’re another way to accumulate debt. It takes weeks or months to pay off purchases when using a BNPL app, and they can come with high interest rates, late fees, and other penalties and costs. If you miss a payment, your credit scores could take a hit. A 2021 Qualtrics survey on behalf of Credit Karma found that 72% of respondents who missed a payment while using a buy-now, pay-later app saw a drop in their scores.

How do I get out of holiday debt?

Avoiding holiday debt is best — if you can manage it. If you can’t, having a plan to repay it as soon as possible is crucial. If you must spend more than you’ve saved this holiday season, here are some tips for getting out of debt quickly.

1. Take advantage of low- or no-interest introductory offers

If you know you won’t be able to pay for your holiday expenses upfront, consider using a credit card with a 0% APR introductory offer to make your purchases. If you pay your balance in full before the intro period expires, you can avoid paying interest.

But beware — many cards have deferred interest. With deferred interest, if you don’t pay off your entire balance before the introductory offer ends, you could be on the hook for all the interest that accrued during the promotional period, not just interest on the remaining balance.

2. Pay more than the minimum

Making the minimum credit card payment each month can be tempting because you get to keep more money for now — but it’ll cost you in the long run. Credit cards have notoriously high interest rates. The average APR on credit card accounts in February 2023 was 20.09%, according to the Federal Reserve.

Because interest on credit cards compounds, you don’t just pay interest on the purchases you make. You also pay interest on the interest charges your account accrues each month that you carry a balance, making it more difficult to repay your holiday debt.

If you can’t pay your entire balance, paying more than the minimum each month will help you get out of credit card debt faster and reduce interest charges. Our debt repayment calculator can help you estimate how long it could take you to pay off your credit card debt based on your planned monthly payment.

3. Consolidate your debt

High credit card interest rates can extend the time it takes to get out of debt. You may be able to pay less interest and get out of debt more quickly by consolidating your accounts with a balance transfer card or debt consolidation loan.

Balance transfer cards often have low-interest or 0% APR introductory offers, allowing you to avoid paying interest if you pay off your balance before the promotional period ends. To take advantage of a balance transfer card, you may have to pay a balance transfer fee — typically 3% to 5% of the amount you transfer.

Debt consolidation with a personal loan allows you to borrow a set amount of money to pay off one or more credit card balances. You repay the money in equal installments over the life of the loan. If you have good credit, you may be able to qualify for a lower interest rate than what your credit card charges.

4. Pick a repayment strategy and stick with it

If you need to pay off debt, there are two main strategies to choose from — the avalanche and the snowball. With the debt avalanche method, you make the minimum payments on all your accounts except the one with the highest interest rate. You pay as much as you can toward your highest-interest debt each month until it’s paid off.

After paying off the account with the highest interest rate, apply those funds to the account with the next-highest interest rate. Repeat the pattern until you pay off all your debt. The debt avalanche method helps you save on interest charges by paying off accounts with the highest rates first.

The snowball method prioritizes paying off accounts with the lowest balance first, while making the minimum monthly payments on the rest. After paying off the smallest balance, put as much money as you can toward the account with the next-lowest balance. Continue until you pay off all your holiday debt.

You may pay more interest using the snowball method, but it can help you stay motivated as you watch the number of accounts you have to pay off dwindle.

What’s next?

Spending within your means during the holidays is possible, but it takes discipline. Start planning your budget now to set yourself up for success this holiday season. Decide how much you will spend, what you will spend it on and how you can get the best deals on your purchases before you start shopping.

You don’t have to spend a ton of money to enjoy the holiday season. The memories you create with your family and friends will last longer than any gift you might give.

About the author: Jennifer Brozic is a freelance financial services writer with a bachelor’s degree in journalism from the University of Maryland and a master’s degree in communication management from Towson University. She’s committed… Read more.