The first thing that comes to mind when we think of holidays is involuntary splurging on items that may not be necessary or the stuff which is beyond our budget constraint. It does not seem harmful, in the spur of the moment, to spend extra bucks to purchase some fancy stuff, in order to put yourself in the best of the festive moods.

Once the holiday season has passed and the credit card invoices show up, you end up regretting exceeding your budget. You may even accumulate unsustainable debt over your head to be repaid in the yearlong monthly instalments, which in itself is not a very enjoyable experience.

What is an Unsustainable Debt?
Unsustainable debt denotes an incapacity of the borrower to pay what is owed without availing more debt. In turn, it becomes a vicious cycle. The primary debt is usually availed at a higher amount than what the borrower is comfortable paying back. This is because a higher amount typically yields to a higher rate of return or a greater sense of satisfaction. Because the repayment of the primary debt is higher than what the borrower can set aside, said borrower then incurs more debt to pay the primary debt. Depending on the borrower’s financial management skills, this cycle could get worse.

Holiday Spending: The Smart Way
Since you would not want to regret it later, you must always do your holiday spending the smart way. Following are a few tips to avoid accumulating unsustainable debt, making the festivities memorable, but not at the expense of your peace of mind:

  1. Plan Ahead of Time
    Last minute shopping during holiday season is a bad idea. You are likely getting yourself higher prices than usual. Why wait until the last moment when you can buy good items within reasonable prices beforehand? It will also be a hassle-free and much more enjoyable experience.
  2. Make a Shopping List and Stick to It
    Have you ever noticed that you can easily keep your budget under control when you have a shopping list handy than when you don’t?
    The best way to finance holidays is by making a list of the items and products you need, versus the things that you desire. Make priorities and ensure that you buy the most important things, first.
  3. Substitute Credit Cards with Cash:
    It is always better to spend in cash because you may have a fair idea of how much you have in your hand than when making purchases on debit or credit cards. Cash is controllable and you can easily monitor how much is left in your pocket before buying something more.
  4. DO It Yourself Presents:
    There are hundreds of things that you can make at home to give as presents than buying expensive, similar gifts on the market.
    It adds a personal touch to the gifts and they become more invaluable than the expensive gifts on the stores, also preventing the burden on your budget.
  5. Book Travel Plans Beforehand
    Traveling is expensive during holidays. Booking a hotel reservation, in the nick of the moment, can also prove financially damaging. If this is on your agenda for holidays, always plan beforehand, as to where to go and where to stay. There are many attractive discount packages available for traveling, hotel booking and other recreational activities online, months before the holidays. Last minute plans cost more.
  6. You Want to Spend, Save First
    For spending, the rule of thumb is to save first. Always keep a bigger picture in front of you for the whole year and ensure that you stick to it. Working towards a goal keeps you focused and helps you avoid needless spending.
  7. Lower interest rates
    If you must use your credit card, go for a credit card that has a lower interest rate and will incur less interest over time. Choosing a credit card with less interest rate, right from the beginning, saves you a lot!

This year, celebrate the holiday season with peace of mind!

Have a great time with your loved ones!

Joe Purewal is a licensed mortgage agent, a financial advisor and debt consolidation consultant. We work with all major Canadian lending institutions on your behalf and bring a range of services at your disposal. Contact us for more details