Holiday Financial Planning

Not ending up spending the next year paying off the purchases from this holiday season. How are you going to pay for the gifts?

Credit cards of course! I'm sure many people are going to criticize me for even suggesting such an idea. I can hear it now, Are you crazy? Don't use your credit cards, USE CASH! I thought you're the anti-credit-card guy?"

I'm not the "anti-credit-card guy" It's not the credit spending that's going to put you into debt. It's the "spending."

If you're going to spend $1,000 then it doesn't matter what you actually use to pay that $1,000. You can use cash, credit, or gold bouillon. Once it's spent, it's gone!

The key is to be smart about how you pay, and using your credit cards is very smart. There are many good reason to use your credit card for shopping. Here are a few:

Interest-free grace period Purchase protection (ability to do chargebacks)

Building credit worthiness

Automatic extended warranties (on some cards)

If your cash is stolen it's gone! If your credit card is stolen, and you report it right away, you don't lose any money.

You may be able to get additional discounts. Rewards such as rebates, and other perks.

What keeps you out of trouble is that you stick to a plan. If, for example, you plan to spend $100 on a television and end up spending $200 only because you can use that credit card--you'll be heading for trouble.

Over the years I've been following a few easy steps that have helped me enjoy the holiday season without having to worry about its cost. It's my hope these suggestions can also help save you money as well.

1) Decide how much you can afford to spend.

This is clearly the most important step. Before heading to the store you must know the total amount you can afford to spend. The total spending for all gifts. The average amount people spend is around $1,000.

It's not the amount you spend that counts, it's just important to know your holiday spending limit. When thinking about your limit keep in mind how much you would pay if you were going to use cash. In other words, how much money can you have available to pay for this holiday's spending when the bill arrives in January?

2) Make list and stick to it.

Now that you have a dollar limit in mind you can start to make your list. After you're done with these estimates, check the estimate total. That total should not exceed your original holiday spending limit. If it does you'll need to go back and make some adjustments.

Refer to your detailed estimate list while shopping and stick to the numbers on the list, and you'll be sure not to go over your original holiday-spending limit. Every year we revise the list and make a printout. We carry that printout around starting in September just in case we find something on sale that will make a great holiday gift.

3) Contact creditor for best deal.

This is the best time of the year to make your credit card banks beg for your business! Many people feel at the mercy of their banks but that's not the case. The banks are at our mercy. Give each bank a call and let them know that they're going to have to give you a deal or you won't use their card this year. Tell them you want 0% for 6 months on purchases or else you'll use another card that will give you that deal. See what happens: you have nothing to lose and you know the rest of this beaten cliché.

I find that 50% of the time I'm able to strike a deal with one of my credit card banks. If they don't then I simply use another card! Give them a call right now!

4) Take advantage of department store card incentives and then transfer the balances.

Again I hear people saying I'm crazy for using a high-rate department store card! And again I say that you just need to be smart about doing it. Every year I get offers from many department stores for discounts if I use their card. Discounts that are 10%, 15%, or more!

I do use these discounts however, I make sure I transfer my balance from the high-rate department store card to a lower-rate credit card before any interest is charged. This way I can take advantage of the discounts plus get low-cost financing.

5) Pay off the card in full when the bill arrives (if possible).

Ideally you should pay off all credit card charges, in full, when the bills arrive. If you stick to your plan then you'd have spent within the holiday-spending limit. This limit should have been based on how much money you'd have to pay the bills when they arrive so, in theory, it will be easy to pay everything off right away. Of course, this doesn't always happen for many reasons.

That's why it's important to use a credit card that's going to give you a few months with no interest on purchases. This way, if something does delay your ability to pay in full right away you can have a little time, at no additional cost, to pay off those charges. Is it worth all the work? Yes indeed! Say you spend 3 hours of your time juggling all the transactions, doing the balance transfers, and calling your banks. Most likely are you're going to save at least $60 - that's $20 per hour! Is it worth $20 per hour? I think so. Then apply it against your holiday debt!